Supreme Court Hears Justus v. State & PERA

On June 4 The Colorado Supreme Court heard oral arguments in the above case. Representing Colorado retirees was local attorney Richard Rosenblatt; he was assisted by Pittsburgh attorney Bill Payne. Hundreds of Save PERA COLA supporters have donated their funds to help us reach this court, where we sincerely trust that the court will find every reason to rule in our favor.

While a discussion here would be quite lengthy to describe the hearing, you may read about it at length in the two comments posted under the post below this one. As you may know, Algernon Moncrief has been providing expert analysis of this case for several years. In these two comments he lays out the numerous deceptions he sees that the Colorado and PERA attorneys have presented the court and documents why their claims are false.

I offer a big thank you to the 14 retirees who appeared in court with us to witness this historic case. We almost outnumbered the attorneys for PERA and the Colorado Attorney General’s Office!

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34 Responses to Supreme Court Hears Justus v. State & PERA

The author of a letter published in today’s Daily Camera draws attention to the Colorado Legislature’s intentional underfunding of the Colorado PERA pension system. The writer notes that the current Colorado State Treasurer, Walker Stapleton, has neglected to point out the fact that the State of Colorado and other PERA-affiliated employers have “failed to pay their public pension bill” for more than a decade. This intentional legislative disregard for Colorado PERA contractual obligations has permitted the diversion of Colorado state and local government revenues from meeting governmental contractual obligations, to non-contractual discretionary expenditures (including enhanced Colorado corporate welfare.) The Colorado Legislature has accumulated a significant PERA public pension debt through the irresponsible diversion of public funds. Now, the Legislature compounds error in attempting a breach of state contracts.

Colorado state and local governments forgo billions of dollars in revenue each year as a result of business tax breaks and subsidies enacted by the Colorado Legislature. In 2010, how many members of the Colorado Legislature, who voted for SB10-001, consciously recognized that effectively, they were voting to steal from Colorado’s elderly in order to augment corporate balance sheets?

The following letter appears in today’s Daily Camera:

“Walker Stapleton, since taking office as State Treasurer in 2010, has turned a blind eye to the Colorado state legislature’s policy of underfunding its employers’ obligations to the PERA trust fund starting in 2003 and continuing to the present. For over a decade, the state legislature has deliberately diverted billions of dollars in state employers’ obligations owed to PERA to pay for multimillion-dollar business tax breaks and corporate welfare subsides and other expenditures without having to raise taxes.

Why has Mr. Stapleton condoned the state legislature defaulting on its employers’ obligations that have substantially increased PERA’s underfunded ratio? Mr. Stapleton has voiced extreme concern about PERA being underfunded. Why does he not say or do anything about the state legislature continuing to default on its employers’ obligations to PERA? The state legislature has been “borrowing” PERA funds since 2003, but with new accounting financial standards effective in 2015 the state will be required to report the billions it owes in employers’ accrued unfunded liabilities to PERA. Mr. Stapleton has not been standing up for taxpayers or PERA employees and retirees welfare by condoning the state legislature underfunding its employers’ obligations to PERA, allowing PERA funds to be diverted and the build up of state employers’ debt obligations to PERA. He has done nothing to correct it.

Mr. Stapleton appears to be doing everything in his power to make PERA look as underfunded as possible and to build up the public perception of a crisis to push for more pension reforms. Google: Matt Taibbi’s Rolling Stone article, “Looting the Pension Funds” and David Sirota’s report, “The Plot Against Pensions — The Pew-Arnold campaign to undermine America’s retirement security — and leave taxpayers with the bill.”
Dinah McKay, Boulder”

Below is a recent article I found interesting. Oregon is trying to argue that although COLA is contractual, the method of calculation can be altered (gratuity?). I realize each state has its unique set of public pension legal protections (or lack thereof), and legal precedents, but public pension COLA’s are under attack around the country. Colorado’s statutory automatic, fixed annual increase, along with some on-point legal precedents, leaves little wiggle room from a legal perspective … so all the defense could come up with was a the weak “durational language” argument.

Another argument that came from the Colorado AG’s office was that our pension base benefit is earned over the course of an employee’s career, but the post-retirement COLA is something not earned and thereby not protected by contract law. Does it make the COLA a gift or a contract? It appears the states of Oregon and Washington are grappling with how much of the COLA is contractual and how much is gratuitous. Will the Colorado Supreme Court create a hybrid COLA, neither contractual nor gratuity? How will it look?

My understanding is the annual benefit increase was designed to maintain a pension’s value over time, not increase a pension’s worth in absolute terms relative to inflation. To relegate the COLA to a range of zero to 2% will almost certainly erode a pension’s value over time.

“Attorneys for the state {Oregon} will argue that lawmakers only adjusted the way cost of living increases are calculated; they didn’t eliminate them entirely. The state says this means the cuts don’t violate any contracts.”

“In August, the Washington Supreme Court affirmed the right of that state’s lawmakers to cut public pension increases.”

When our opponents have almost limitless dollars (our PERA Trust Fund and AG’s office tax dollars) to spend on their defense of SB10-001, nothing is certain. How an appeal by PERA and the AG to the U.S. Supreme Court would work is not clear, since it would be the Colorado Supreme Court telling them how to interpret Colorado law. No decision will be released on September 29th, per the SC website http://www.courts.state.co.us under announcements. This one deserves very careful analysis for them to get it right. Patience is important.

I was being somewhat tongue-in-cheek with my thought as to the court opinion date, considering that the Court would want to conclude most “old business” ahead of reconvening on Sept 30. However, I also realize that SB10-1 may take much longer to decide, considering the economics and politics surrounding the issue. There may be some consideration among the justices to delay or deliberate a while longer to see overall market gains (or losses) for 2014, or to see some preliminary results from the initial actuarial study mandated by SB14-214 … Study #1 (January 15, 2015).

At least in my mind, the legal argument as to the contractual nature of the statutory fixed Annual Benefit Increase (ABI) of 3.5% was clear and convincing. The “durational language” argument presented by the defense was disingenuous to say the least, as this additional language was for actuarial clarity in addressing survivor (Option 2 or 3) benefits and does not affect the contract entered into by the retiree.

If the statutory ABI is considered a gratuity, then would the original base pension benefit also be a gratuity? There are only 2 states where state pensions are considered gratuities: Texas and Indiana. State employees in 7 states do not participate in Social Security in conjunction with their state service: Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, Ohio. However, state employees in Indiana and Texas receive Social Security in addition to their state pensions (Texas teachers do not receive Social Security). It should be noted that courts in Texas and Indiana have added some public pension protections over the years (i.e., not a mere gratuity).

An interesting question: Will Colorado become the only state in the nation in which a career state employee’s retirement income is based solely on a non-contractual gratuity without the inflation protection of Social Security? Surely the Colorado Supreme Court is aware of this distinction.

Hi Stan. I realize you’re looking at things from a practical perspective here, but if the court is deciding something as a matter of law, wouldn’t any economic or political considerations be irrelevant?

Hi Deborah. It has always been my hope that the Colorado Supreme Court would consider this case purely as a matter of law. Indeed, the appellate court was true to this mission. However, during oral arguments on June 4, comments from two justices touched on the matter of economics and politics.

In regards to economics (or social justice), one justice commented that many employees went without a raise (or COLA) during the recent economic downturn … so he asked why should retirees get a raise. The plaintiffs’ attorney responded that the retirees have a contract.

In regards to politics, another justice questioned whether it’s appropriate to overturn a legislative decision. Again, the plaintiff’s attorney responded that the retirees have a contract.

So my earlier comment was not meant to be cynical but pragmatic. If the Court were to decide in favor of the retirees, then pension obligations would spike. The growth of some government programs (Medicaid?) would need to be curtailed, and future TABOR rebates would need to be diverted to cover pension obligations. The political cost would also be enormous, as perhaps a couple legislative sessions may be spent focused on prospective pension reform. Might I add that these sessions would be ugly and include a lot of political wrangling and pontificating.

Of course, the supreme court should stay true to the law and leave the economics and politics to others. If they were to uphold the retirees’ contract to a fixed, automatic and guaranteed ABI (or COLA) of 3.5% (3.25% for DPS), there would still be another tool in the legislature’s toolbox in case of a future severe economic downturn … actuarial necessity … which could be used to impair retiree contracts, if necessary.

Thanks Stan, I appreciate your explanation. I was at the oral hearings also, but the arguments went so quickly I didn’t pick up on those varying perspectives as you did. I hope we’re both right, that it will be decided solely as a matter of law. It simply seems just that we should receive the ABI we contracted for.

Deborah:
I agree. The Supreme Courts primary goal is to interpret legally without regard to politics, trends, etc. Ideally there would be NO financial or political influence ( although it’s not always ideal). In this case , a politically motivated decision would be so easy to spot that I doubt it would pass the smell test.
Stan is mistaken about a “spike” in pension obligations. Any spike is offset by the equal drop ( now nearly 5 years old ) gained by the breach in the first place. In addition, the Class in this lawsuit is not future retirees, but current retirees who, sadly grow smaller in number with time, not greater. I would be interested to know how many pensioners are already gone from the class over these 5 years!
finally the “tool” of actuarial necessity spoken of is only valid if there has been sufficient diligence in maintaining the fund. There hasn’t, and no actuarial necessity has been shown to exist that wasn’t artificially created ( albeit slightly magnified by recessions) That fault lies solely with the CO legislature. The disgrace here is that this even took 5 years. PERA is again on solid ground and hindsight clearly shows this was a manufactured crisis in the first place. The savings attributed to this taking of benefits was transitory at best, because retirees represent a shrinking obligation, not a growing one.

One last note, Stan mentioned a justice asking…” in regards to politics, another justice questioned whether it’s appropriate to overturn a legislative decision”. well that’s exactly the function of a Supreme Court ! if that was really asked by a member of the Supreme Court, I’d question either his qualification to serve or his sanity. Courts routinely find certain laws to be unconstitutional, and especially those that violate both spirit and intent of established contract law.

The Colorado Springs Business Journal and the Colorado Springs Independent are both reporting that city and PERA legal teams have come up with a negotiated settlement in the legal brouhaha surrounding Memorial Hospital’s withdrawal from PERA. City council and the PERA board have yet to vote on the possible settlement. Could this be nervousness ahead of the scheduled Oct trial? Or, is this rush to settlement due to uncertainty over the upcoming Colorado Supreme Court ruling in regards to SB10-1? A court ruling favorable to retirees would probably lead to a recalculation of Colorado Springs (Memorial Hospital) pension liabilities.

The Colorado Supreme Court calendar shows post-recess oral arguments start up on Sept 30. So if I were to pick a date for an office pool, I’d select Monday Sept 29 as to when the ruling is posted. This would help explain the rush to settlement between PERA and Colorado Springs.

Well, it won’t be this coming Monday September 22. The supreme court’s home page just declared (Friday at 1:35 p.m.) that there will be only two opinions that day-neither are ours. You can monitor their announcements each Friday/Monday at courts.state.co.us .

Hello,
I recieved my 2% increase and did a calculation and it was short. I called PERA customer service and the gal i talked agreed with me. She forwarded my inquiry to payroll. Payroll wrote me back and said that their calculation was correct and that the increase is based on some sort of formula which doesn’t equate to 2% per year. So in other words the 2% increase is a scam, also.

Contrary to the public pension contract breach propaganda du jour, state courts are upholding contractual rights to “automatic” public pension COLA benefits.

Lately, a few proponents of taking accrued pension COLA benefits from pensioners have been trying to plant (in politician’s heads) the false meme that courts are just fine with breach of public pension COLA contractual obligations. Everyone is doing it! Jump on the bandwagon!

Well, I follow developments in U.S. public pension litigation more closely than most, and this claim struck me as ludicrous. So, I decided to locate and examine the recent pension COLA decisions myself.

Readers should know that a well-oiled, well-funded, corporate public pension “crisis” noise machine exists in the U.S. The aim of this machine is to divert attention from the $80 billion in corporate welfare that is given away by state and local governments in the U.S., and to focus attention on public pension unfunded liabilities (underfunded by approximately $40 billion annually.) If successful, this effort will help protect U.S. corporate welfare.

One such propaganda piece was recently produced by a university research center (receiving corporate financial support from Goldman Sachs no less.) The paper’s author is “surprised” that courts are “upholding” COLA cuts by state legislatures! Oh my! But, this “surprise” is unwarranted, as it is contradicted by reality.

In this article, I provide excerpts from recent state court decisions in public pension COLA cases, as well as links to the cases. A brief examination of recent state court decisions quickly debunks the “courts are just fine with breach of COLA contracts” meme. This article concludes by providing background information relating to “automatic” and “ad hoc” public pension COLA benefits in the United States.

In 2010, a number of Colorado politicians, state officials and Colorado union officials decided that they wanted to break the COLA contractual obligation in the Colorado PERA pension plan. Yes, Colorado public sector unions have advocated for a breach of the contracts of their retired union “brothers and sisters.” (Remember that retirees no longer pay union dues. In my view, Colorado public sector unions have sullied the U.S. Labor Movement and exacerbated income inequality in the U.S.)

The hope of the proponents of breaking Colorado PERA public pension COLA contracts was that Colorado courts would not know the difference between “automatic” and “ad hoc” public pension COLAs. Their hope was that Colorado courts would fail to discover this difference in types of public pension COLA benefits and sanction the desired PERA pension contract breach. (Some of those who participated in this scheme to help Colorado governments escape their legal debts were Colorado state employees.)

In 2010, these public sector and union officials colluded to break the contracts of Colorado PERA pensioners and attempted to “claw back” accrued Colorado PERA pension COLA benefits (an annual percentage increase in the PERA base benefit that is specified in Colorado law.) Colorado PERA pensioners are suing the pension administrator, Colorado PERA, and the State of Colorado for the pension contract breach (Justus v. State.)

Public pension administration and jurisprudence are extremely complex subjects. The proponents of the Colorado PERA pension contract breach have hoped to use this complexity to their advantage. Statutory public pension COLA provisions may be “ad hoc” COLA benefits that may be legally adjusted by public pension plan sponsors, or “automatic” public pension COLA benefits that are part of public pension contractual obligations. Any diminishment or impairment of an “automatic” public pension plan COLA benefit by a public pension plan sponsor (such as the State of Colorado and Colorado PERA) is constitutionally impermissible.

In legal briefs that the proponents of breaking Colorado PERA COLA contractual obligations have filed in the case, Justus v. State, no mention is made of the existence of “ad hoc” and “automatic” public pension COLAs. Why is that?

Since 2010, a number of states have attempted to escape statutory “automatic” public pension COLA contractual obligations. However, state courts are slowly, but surely, learning the distinction between contractual “auto COLAs” and “ad hoc COLAs.” State courts are discovering that “automatic” public pension COLAs are no less a contractual obligation of public pension plan sponsors than are public pension base benefits. State courts are upholding the Rule of Law in the United States:

COLORADO

Colorado Court of Appeal’s Decision in Justus v. State (October 11, 2012): “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs here have a contractual right to a particular COLA.”

Colorado PERA officials in written testimony to the Joint Budget Committee (December 16, 2009): “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

“The legislative reduction of the GABA implicates a fundamental constitutional right and must be evaluated under the strict scrutiny standard, ‘whereby the government must show that the law is narrowly tailored to serve a compelling government interest.'” “Montana law treats public employee pensions as contractual obligations.”

“After such vesting, ‘[the pension] contract cannot be unilaterally modified nor can one party to a contract alter its terms without the assent of the other party.’”

“Smith is inapposite. Assuming the case was correctly decided, we note that it reflects the general principle that statutory provisions do not create contractual rights. But statutorily established retirement benefits are an exception to this rule.”

“’It is not the courts’ role to run the pension systems,’ Reisner wrote. ‘Our responsibility is to interpret and apply the constitution in light of the evidence, and we will do so.'”

“Under settled law, for the state to be able to break the COLA contract, it must show at the trial court that the harm to retirees is not ‘substantial,’ that the government is breaking its agreement for a ‘reasonable public purpose,’ and that the freeze is related to ‘appropriate governmental objectives.’

“Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.”

“Stated otherwise, by its plain language, the pension protection clause prohibits legislative action that diminishes or impairs pension benefits by altering the terms of the contract governing the pension.”

“In 2011, the Legislature amended these statutes again and repealed the UCOLA for all active and retired members. It did not offer a benefit in exchange for terminating the COLA.”

“Two cases are dispositive to this Court, Jacoby and Navlet. In each of those cases, our Supreme Court rejected employers’ attempts to reserve the right to unilaterally withdraw vested retirement benefits.”

“This Court must follow the binding precedent of Jacoby and Navlet. Under that precedent, the State is prohibited from reserving the right to unilaterally terminate the UCOLA. The UCOLA was vested because employees began work based, partially, on the promise of a UCOLA. Further, the parties agree that the State did not offer any off-setting benefit when it terminated the UCOLA. The State’s actions therefore violated existing law and summary judgment to the employees is warranted as a matter of law.”

“His (Colorado PERA General Counsel Greg Smith) briefing paper said ‘there has never been a finding in Colorado that the state has reserved its power to make changes’ in PERA’s benefit structure.”
“Smith said in his opinion that ‘other (non-Colorado) courts have set a high burden to meet the necessity threshold.'”

“The PERA board, however, relying on a legal opinion by General Counsel Greg Smith, thinks benefits cannot be cut for any active PERA member. That means not just current retirees and workers who are eligible to retire but the brand-new employee who has put less than a year of contributions into the plan.”

“Smith argued, however, that there is no precedent for declaring an actuarial emergency unless a pension fund has a serious cash liquidity problem.”

(My comment: Note that the City of San Jose, California, in its efforts to escape public pension COLA contractual obligations, did not try do deny that the public pension COLA benefit is a contractual obligation, as have Colorado politicians. The City of San Jose argued for the right to be able to suspend the COLAs in an emergency.)

“A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity (Betts).”

“Section 1510-A (COLAs) provides that, if the Council adopts a resolution declaring ‘a fiscal and service level emergency,’ the City may, for a period of up to five years, suspend all or part of the COLA payments due to all retirees.”

“The City argues that Valdes supports the notion that vested rights can be suspended in an emergency. There are several difficulties with this argument.”

“In authorizing denial of benefits rather than mere deferral, Section 1510-A exceeds the scope of what Valdes contemplates as potentially allowable. Accordingly, Section 1510-A is unlawful and invalid.”

The Oregon COLA-taking legislation was enacted last Fall (2013.) Under a provision of the bill that broke the pension COLA contract the legal challenge was sent directly to the Oregon Supreme Court. Just nine years ago the Oregon Supreme Court addressed this question, the contractual nature of public pension COLA benefits (in 2005.)

“We therefore conclude that the elimination of annual COLAs from the ‘fixed’ service retirement allowance, as set out in Oregon Laws 2003, chapter 67, section 10(3), is inconsistent with the legislature’s promise set out in ORS 238.360(1) (2001).”

” . . . Strunk and Sartain petitioners are correct in their assertion that the provision of the 2003 PERS legislation that directs PERB to not apply annual COLAs to certain retired members’ ‘fixed’ service retirement allowances breaches the contrary obligation of the PERS contract to do so; that provision also is declared void and of no effect.”

The South Dakota and Minnesota legislatures both passed bills in recent years that reduced public pension COLA benefits. The Defendants in the case, Justus v. State, cited these state bills as examples of successful state legislation reducing pension COLA benefits. But, in its 2012 Decision in the case Justus v. State, the Colorado Court of Appeals noted that public pension COLA benefits in South Dakota and Minnesota are in essence “ad hoc” COLAs.

Colorado Court of Appeals: “Lastly, defendants point to two decisions by trial courts in other jurisdictions that have rejected contentions that the legislature’s modification of public employee retirees’ COLA violates the Contract Clause. Those cases, however, are distinguishable. In Swanson, the court held that the plaintiffs did not have a contractual right to a specific statutory COLA formula. But in that case the relevant statute required only the use of certain procedures (tied to the level of the pension fund’s investment returns) to calculate “whether an adjustment is payable,” on an annual basis. It did not set forth a specific rate of increase. Here (in Colorado), however, the COLA formula was never tied to the level of PERA funding until after sections 19 and 20 of Senate Bill 10-001 took effect. Rather, the formula in effect immediately before the bill’s enactment provided for a specific rate: “[t]he cumulative increase applied to benefits paid . . . shall be the total percent derived by multiplying three and one-half percent, compounded annually, times the number of years such benefit has been effective after March 1, 2000.” In Tice, the court considered a COLA statute providing that “‘all benefits except those depending on the member’s contributions shall be annually increased by the improvement factor.’” The court concluded that the statute mandated only that a contribution must be increased by an unspecified amount, which the legislature was free to change. Here, as noted, the prior COLA statute established not merely the payment of a COLA, but the payment of a specified percentage.”

“Minnesota is the sole state that protects pensions on the basis of ‘promissory estoppel,’ that is, public pensions are protected against reduction or other impairment only where an individual can show that he or she justifiably relied on the state’s promise of benefits and was harmed by the change.”

“The Governmental Accounting Standards Board (GASB) requires public pension plans to disclose assumptions regarding COLAs, including whether the COLA is automatic or ad hoc, and to include the cost of COLAs in projections of pension benefit payments.”

(My comment: Thus, it should be a simple matter to locate a public pension plan’s characterization of its statutory COLA benefit.)

“According to the Public Fund Survey, approximately three-fourths of pension plans sponsored by states and local governments provide some form of an automatic cost-of-living-adjustment (COLA), i.e., one that does not require specific approval of or action by the plan sponsor (the legislature or city council).”

In 2001, the actuarial firm, Buck Consultants provided a report to the Legislative Audit Committee of the Colorado General Assembly. In agreement with a recent statement of Colorado PERA employee Koren Holden, the 2001 Buck Consultants report clearly identifies the Colorado PERA 3.5 percent COLA as “automatic.” The report also refers to PERA’s “guaranteed benefits at retirement,” and the “fixed” COLA, that is “compounded annually for each year of retirement.” The Buck Consultants report identifies the 3.5% PERA COLA as “automatic,” contrasting the PERA COLA with an “ad hoc” COLA “as approved by Legislature.”

“This video describes the methods and assumptions used to calculate the net pension liability . . .” “The projections should be based on the benefit terms and legal agreements existing as of the pension plan’s fiscal year end.” “The benefits should also incorporate the effects of projected . . . automatic postemployment benefit increases such as the annual increase provided by Colorado PERA.” “In addition, ad hoc post-employment benefit changes should be included if they are considered to be essentially automatic. ”

As we have seen, HB93-1324 struck the former “ad hoc” COLA language from Colorado law. The language stricken in the bill: “(2) Cost of living increases in retirement benefits and survivor benefits shall be made only upon approval by the general assembly.”

GASB:

“Questions and Answers Governmental Accounting Standards Board.”

“The intent of Statement 25, paragraph 36a, in distinguishing between automatic and ad hoc COLAs, is to REQUIRE (my emphasis) that actuaries include in the scope of their projections any COLAs that are CLEARLY AUTOMATIC (my emphasis) — that is, COLAs embedded in the plan for which there is NO DISCRETION (my emphasis) or condition as to timing or amount. This criterion is intended to be strictly construed, as a basis for a minimum standard.”

“New GASB Pension Statements to Bring about Major Improvements in Financial Reporting.”

“Measuring the Pension Liability.”

“Provisions for automatic cost-of-living adjustments (COLAs) and other automatic benefit changes (which generally are written into the pension benefit terms) will also continue to be included in projections. On the other hand, ad hoc COLAs and other ad hoc benefit changes—which are made at the discretion of the government—will only be included in projections if they occur with such regularity that they are effectively automatic.”

August 2, 2010, Ritter Administration Letter to GASB on contractual public pension obligations:

“The criteria suggested as the basis for differentiating these COLAs [automatic] versus ad-hoc COLAs is the statutes that exist as of the date of the employer’s financial statements.”

“The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”

The National Institute on Retirement Security on “automatic” and “ad hoc” public pension COLAs: “One key design feature of a COLA is whether it is automatic or ad hoc in nature. An automatic COLA means the retiree’s benefit increases automatically every year by a certain percentage. An ad hoc COLA is granted at the discretion of the plan sponsor, usually when the fund is in a well-funded position and investment gains have exceeded expectation.”

August 8, 2012, Douglas Greenfield: “The theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.” Greenfield participated in a panel discussion hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”

“The Board agreed to support legislation designed to encourage earlier retirement and reduce the state’s costs, provided that this legislation would also change PERA’s post-retirement adjustment to an automatic increase of 3.5 percent compounded annually and increase the contribution to PERA’s Health Care Trust Fund once PERA is fully funded. Since House Bill 00-1458 included these provisions, the Board supported this bill.”

Keith Brainard, Research Director, National Association of State Retirement Administrators testifies before the a subcommittee of the U.S. House of Representatives (February 14, 2011):

“Only 30-40 years ago, most public plans were financed primarily on a pay-as-you-go basis.”

“Even after the most recent and unprecedented financial downturn, most state and local government pension trusts have plenty of assets to continue to pay promised benefits for years, and values already have rebounded sharply since the market low.” “The percentage of all state and local government spending on pensions has hovered around three percent during the last decade.”

CHIEF JUSTICE (Retired) NEW HAMPSHIRE SUPREME COURT, STATES MUST HONOR PUBLIC PENSION CONTRACTS.

“I grew up in a world where a deal was a deal. If public retirement benefits are changed or withdrawn for employees already in the system, we will lose our ability to attract new employees to public jobs. Uncertainty is not our friend.”

“Other states have addressed this concern by making changes prospectively; that is, only having them apply to employees who join the public work force after changes are adopted into law. At least that puts people on notice and honors expectations.”

“At the end of the day, I don’t think it’s fair or just to change the rules after the game begins. New Hampshire is a special place where public commitments have meanings. We should honor them.”

“John Broderick Jr., a former chief justice of the New Hampshire Supreme Court, notes that the views expressed above are his own and not necessarily those of the University of New Hampshire Law School, where he serves as dean.”

Colorado PERA officials in written testimony to the Joint Budget Committee (December 16, 2009): “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Colorado Supreme Court, in Denver Police Pension and Relief Board, 1961: When conditions are satisfied for retirement . . . . “at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it has ripened into a full contractual obligation.” “Whether it be in the field of sports or in the halls of the legislature it is not consonant with American traditions of fairness and justice to change the ground rules in the middle of the game.”

Colorado Court of Appeal’s Decision in Justus v. State (October 11, 2012): “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs
here have a contractual right to a particular COLA.”

“A final note: For all those outraged with the (Illinois) Supreme Court Justices, save your fire. Their job is to interpret the law and the Constitution.”

An Illinois’ teacher’s response to this Chicago Sun Times editorial:

“The Court made clear that our Constitution still functions as a guide to civic behavior; that it is not merely an irksome obstruction around which to craft clever legislative end runs.”

“For decades, we Illinois citizens have enjoyed cut-rate public services at least partially subsidized by the willful, cynical stiffing of pension funds. Let’s fix our money problems without demonizing and punishing public sector citizens/retirees who have done their part, through many decades of teaching and protecting their neighbors, to make Illinois strong.”

(My comment: On August 11, 2009, at the Denver meeting of the Colorado PERA “Listening Tour” Colorado PERA’s General Counsel Greg Smith blamed the Colorado General Assembly for the decline PERA’s actuarial funded ratio: “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

In 2010, Colorado state legislators passed a bill (SB10-001) breaking Colorado PERA pension contracts. Since then, politically connected lawyers hired by Colorado PERA have struggled to create legal contrivances designed to support the Colorado Legislature’s “end run” around those Colorado public pension contracts.

The latest Colorado PERA contrivance is that, although the statutory language establishing the Colorado PERA “base benefit” and the Colorado PERA “COLA benefit” is identical, statutory language in another Part of the Colorado PERA statues supports the PERA “base benefit,” but not the PERA “COLA benefit.” That Part of the PERA statutes sets forth choices for delivery of the lifetime PERA annuity and states that the PERA annuity is “paid for a lifetime.” Why are Colorado PERA’s lawyers surprised that the statute setting forth options for payment of PERA benefits for a lifetime states that Colorado PERA pension benefits are “paid for a lifetime”? They are “lifetime” annuities.

Why do Colorado PERA’s lawyers believe that this language in the Part of the PERA statutes providing options for payment of the PERA annuity supports the PERA “base benefit,” but not the PERA COLA benefit? There is no basis for this claim. It is purely a contrivance designed to allow Colorado state and local governments a means of escaping their legal debts.

Since the Colorado Court of Appeals has rejected the prior contrivances of Colorado PERA’s lawyers in the case Justus v. State, the creativity of Colorado PERA’s lawyers has been taxed. The arguments of Colorado PERA’s lawyers now desperately cling to gossamer threads. (I am amazed that Colorado PERA pension members are forced to pay for the crafting of such legal contrivances out of their own trust funds.)

“If you look at the language of the PERA statute . . . Section 801.1, of the PERA statutes, says that the monthly benefit is payable for the lifetime of the beneficiary.” “COLAs are instated in Part 10 of the PERA statutes . . . ” “The COLA statutes in Part 10 simply don’t. That language is conspicuously absent from the COLA statutes.”

Apparently, Colorado PERA’s lawyers are not troubled by the fact that this “durational language” is also “conspicuously absent” from the statute creating the PERA base benefit contract (Part 6) which they agree creates a contractual obligation.

Here is the response of the retiree’s attorney Rosenblatt during the oral arguments:

“First of all, I want to disagree with my colleagues as to what creates the base contract, the base pension contract, it is 24-51-602, which reads, that members . . . SHALL upon written application and approval of the board, receive service retirement benefits pursuant to a benefit formula . . .” “So, it’s ‘SHALL RECEIVE’ is the language that creates the contract for the base pension, which they (defendant’s attorneys) agree is a contract.” “And, the COLA statute says “SHALL,” uses the same mandatory language.” “The durational language that they speak of is under a section that sets forth options for payment of lesser amounts if the retiree wants the benefit to cover the life of a spouse.” “The actual creation of the (base benefit) contract is based on the mandatory language ‘SHALL RECEIVE” in 24-51-602 and I would submit that the mandatory language is the same as the mandatory language in the COLA.”

It should be noted that the Colorado Supreme Court (like the Illinois Supreme Court) has determined that any ambiguity in public pension statutes shall be liberally construed in favor of the rights of the pension member (Endsley.) This only makes sense. What justice would there be in allowing state governments to casually break their contracts with public employees who have given thirty years of service? Further, the U.S. Supreme Court has deemed that any attempt by a state government to escape its financial obligations shall receive heightened scrutiny. No discovery or trial has yet occurred in this case, Justus v. State.

Colorado Law – Section 24-51-1002 (1), Colorado Revised Statutes, “ . . .the cumulative increase applied to benefits paid SHALL be recalculated annually as of March 1 and SHALL be the total percent derived by multiplying three and one-half percent, compounded annually, times the number of years such benefit has been effective . . .”

Under Colorado law, members of Colorado PERA who purchase PERA service credit SHALL receive Colorado PERA pension benefits in effect at the time of the purchase:

Colorado Law – Section 24-51-502 (3), Colorado Revised Statutes, “Service credit purchased by members . . . SHALL be subject to the benefit provisions in effect for the existing member contribution account.”)

Colorado Supreme Court (in the case, Bills):

“. . . until an employee has earned his retirement pay, or until the time arrives when he may retire, his retirement pay is but an inchoate right; but when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it is ripened into a full contractual obligation.”

Here is a link to the June 4, 2014 Colorado Supreme Court Oral Arguments in the Colorado PERA retiree lawsuit, Justus v. State:

In 2010, when Colorado PERA and Colorado legislators began to plot the SB10-001 COLA taking they admitted that the COLA was a Colorado PERA contractual obligation (See comments of SB10-001 sponsor Senator Josh Penry.) Their plan, at that time, was to admit to the contract, but argue that it was “actuarially necessary” to break the contract.

Today, their legal strategy is to deny the existence of the PERA COLA contractual obligation. But, it’s too late to change the legal strategy, they have already acknowledged their contractual obligations to pay the PERA COLA benefit. Just as Colorado PERA administrators cannot retroactively take accrued PERA COLA benefits, they cannot retroactively change their legal strategy to take accrued PERA COLA benefits.

Thus, Colorado PERA’s lawyers have a difficult task. The evidence of the Colorado PERA COLA contract includes admissions of its existence by all parties. There is no question that the PERA COLA is a contractual obligation. The Colorado PERA COLA contractual relationship under discussion has been confirmed in written testimony provided by Colorado PERA’s lawyers to the JBC in 2009, and by the sponsor of SB10-001, Senator Josh Penry, and by members of the Legislature during floor debate of SB10-001, and by PERA’s representative Rob Gray at the inception of the “automatic” PERA COLA benefit (a Colorado PERA “liability,”) and by PERA’s current Executive Director in a public statement, and by PERA’s hired actuaries. Further, the contractual obligation is clear in Colorado PERA statutes, and it has been confirmed in a Colorado Attorney General’s Opinion. All involved parties agree, on the record, that the PERA COLA is a contractual obligation. Colorado PERA’s lawyers are currently trying to persuade the Colorado Supreme Court to don the blinders and ignore the many acknowledgements of the PERA COLA contract by Colorado PERA and state officials. Their latest Clintonesque undertaking is to persuade the Colorado Supreme Court that “shall” does not mean “shall.” Colorado PERA’s lawyers created this new contrivance to feed to the Colorado Supreme Court judges. They hope the judges will swallow it whole and allow Colorado governments to engage in what is, in my opinion “theft.”

In Colorado, public pension contracts are strongly supported in case law. Colorado is one of the states in which courts follow the strict “California Rule” of public pension jurisprudence. For 60 years, the Colorado Supreme Court has recognized the contractual public pension relationship, including the specific right to the pension “escalator” (COLA or ABI.) This makes sense. Otherwise, Colorado governments would be free to retroactively take the earnings of their employees. Colorado governments would be free to include an “automatic” COLA provision in a public pension plan, force their employees to fund that COLA benefit, underfund their pension plan, and then take and use employee consideration supporting the COLA to pay off plan unfunded liabilities.

“By ruling that the subsidized health care benefits of retired state employees are protected by the Illinois Constitution, the court raised the unpleasant specter that there may be only one way out of the pension mess facing the state as well as local governments. That is: come up with the money, no matter how painful.”

“At every turn and in the strongest of language, the high court seemed to go out of its way to uphold the ironclad sanctity of the 1970 Illinois Constitution’s ‘pension protection’ clause for public employees.”

Quoting from the Illinois Decision:

“Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.”

“Others noted Thursday’s ruling did not directly deal with the two main legal arguments raised in defense of the state’s pension-reform legislation. One is that the state faces a financial emergency that allows it to do what it needs to protect the welfare of its citizens. The other is that state employees are receiving ‘consideration’ for their reduced benefits in the form of lower contributions.”

(My comment: Colorado PERA Board Trustee [and judge] Casebolt assured PERA retirees present at the August 11, 2009 Colorado PERA Denver “Listening Tour” meeting that: “PERA faces no immediate danger of being unable to pay benefits, in fact, PERA can pay benefits for many years to come, based on our current funding and our benefit structure coupled with over $30 billion in assets, at present market value.”

“Cash-strapped government budget makers ‘cannot write (the Illinois Constitution) to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve,’ said a more restrained but equally decisive Illinois Senate President John Cullerton.”

“The court ruled that retiree health insurance benefits for state workers mandated by the Legislature deserve the same level of protection as pensions, which according to the constitution ‘cannot be diminished or impaired.'”

“‘If the justices can read the pension clause of the constitution to protect health benefits, they certainly would use it to protect pension benefits,’ former state Budget Director Steve Schnorf said.”

(My comment: Colorado’s state budget director, Henry Sobanet was “intimately involved” in crafting SB10-001, the 2010 Colorado PERA “COLA-taking” legislation. Henry Sobanet has also worked as a “consultant,” and a “policy advisor” for the business group “Colorado Concern” that supported the bill, SB10-001, with its hired lobbyists in 2010. From the Colorado Association of School Boards: “Sobanet also served under former Gov. Bill Owens and was intimately involved in the crafting of SB 10-001, the bill passed in 2010 to shore up PERA.”

“‘This bodes very, very ill’ for the pension cuts the Legislature approved for state workers, and for a similar set of trims Mayor Rahm Emanuel wants for his workforce, he added.”

“Time after time, without finally resolving the issue, the court seemed to go out of its way to knock down any changes not agreed to by workers unions, and perhaps by each individual worker.”

(My comment: Why do Colorado PERA administrators cite union support for the SB10-001 PERA pension contract breach? These unions have no authority to relinquish the contractual rights of any individual Colorado PERA member. Most PERA members do not belong to these unions.)

Chicagobusiness.com:

“But, said the court, ‘In light of the constitutional debates, we have concluded that the (pension) provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.'”

“But, ruled the court, ‘Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.'”

“So, the current 3 percent guaranteed annual COLA would appear to be here to stay.”

“‘Time and again we have urged legislators to respect the constitution they are sworn to uphold and to work together with us to develop fair and constitutional solutions,’ AFSCME said in a statement.”

“I wouldn’t be at all surprised if House Speaker Michael Madigan revives his campaign to force local units of government, particularly school districts, to pick up pension costs that the state now pays.”

(An online comment was made on this Chicagobusiness.com article: “The politicians that crafted this legislation knew all along they were going against the constitution. They proceeded anyway thinking nobody would challenge it.”)

“The Supreme Court has come close to declaring that whatever retirement benefits were in place on THE FIRST DAY (my emphasis) of a worker’s public job can’t be reduced for however many decades he or she is alive.”

(My comment: Here the Chicago Tribune refers to the “California Rule” of public pension jurisprudence. Recall that Professor Amy Monahan in the article “Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform,” (Iowa Law Review article) expresses her surprise at the Denver District Court’s initial decision in the case Justus v. State:

“The court’s ruling is surprising both because the court broke from the previously endorsed [by Colorado courts] California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

Public pension Legal scholar Professor Amy Monahan in yet another law review:

“The (Denver District) court’s ruling is surprising both because the court appeared to break from earlier Colorado decisions that found pension benefits to be contractually protected prior to retirement and because the change could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”)

“There is no public pension crisis. States have the money to fully fund their pension obligations, but they would rather spend it on corporate subsidies. U.S. public pensions face a 30-year shortfall of $1.38 trillion, or $46 billion dollars on a annual basis. This is dwarfed by the $80 billion a year states and cities spend on corporate subsidies.”

“The war on public pensions is a distraction to prevent citizens from seeing the real cost of entitlement programs for corporations. The money the states should have been contributing to pensions have been going to subsidize corporate tax breaks. End the corporate tax breaks, and states will save $80 billion dollars a year. That is almost double what they need to fulfill their pension obligations.”

“The charge against public pensions is being lead by a former Enron trader. His mission is two-fold. Protect corporate entitlement programs and change public pensions from Defined Benefit (DB) to Defined Contribution (DC). If he is successful in changing public pensions from DB to a DC model, Wall Street will rake in trillions in fees while all the risk falls upon public retirees.”

“Write to your state representatives. Let them know that you know the real problem is entitlement programs for corporations, and that these tax breaks have to end. To read more about this subject, read David Sirota’s article: “The Plot Against Pensions”.

“Exactly, and that’s the thing people don’t talk about. You can’t compare public to private workers because private sector workers don’t just have their 401(k)s, they have Social Security. Public workers have only their pensions to look to for retirement.”

“Politicians failed to follow up on the terms of the contract and now the state wants to punish the employees. I guess the Supreme Court of Illinois is good at interpreting a contract.”

“Let’s not paint with such a broad brush of blame, levels of government didn’t cause this problem. Elected officials who failed to do their job with integrity are to blame.”

“This is progress. The Court has ruled that it is not its responsibility to bail out the legislators, governors, aldermen, and mayors who got us into this mess. Anybody waiting for the pension fairy to wave her magic wand is out of luck.”

“Finally! Back to you, lawmakers – see to it that all public pensions are fully funded – do your jobs!”

“It was the State of Illinois that chose not to allow state employees to be in Social Security. That was because then the State would have been forced to make contributions and could not divert the payments to roads, welfare and other expenditures.”

Chicago Sun Times;

“The Illinois Supreme Court on Thursday said loudly, clearly and ominously that public employee pension benefits in the state cannot be cut.”

“That can mean only one thing: State and local lawmakers had better get working on a Plan B. Illinois needs alternatives to the state pension-reform law passed in December and to the Chicago pension-reform law passed in May.”

“In this case, the justices ruled that subsidized health care for retired state employees is protected under the Illinois Constitution and can’t be cut, just like pension benefits.”

“Just like pension benefits.”

“No one ever thought a pension-reform law would breeze through
the Supreme Court; the Constitution prohibits benefits from being ‘diminished or impaired.’ State lawmakers took that into account in drafting the reform bill, looking high and low for ways to inoculate the bill constitutionally. In the state worker bill, for example, employees will get a state funding guarantee and a reduction in their annual contributions in exchange for reduced benefits.”

“A final note: For all those outraged with the Supreme Court justices, save your fire. Their job is to interpret the law and the Constitution.”

Illinois blogger Glen Brown draws attention to a teacher’s response to the Sun Times editorial in his blog post today. Here are a few excerpts:

“Dear Editors:

“As a retired teacher, I resent the relentless and often cavalier attacks on my pension and its relationship with state government.”

“Yes, the Illinois Supreme Court reiterated what has been crystal-clear all along. Our teacher/public worker health benefits are a contractual obligation, freely entered into by all parties, enforceable by Constitutional law, and supported by the time-honored American values of ethics and fairness.”

“The Court made clear that our Constitution still functions as a guide to civic behavior; that it is not merely an irksome obstruction around which to craft clever legislative end runs.”

“In following your false premise to its (necessarily) illogical conclusions, your editorial staff has failed to struggle with the larger, more germane issue: Illinois has an antiquated and unsustainable tax structure. Revenues are only remotely correlated with the demand for public services. Corporations and wealthy individuals are offended by the idea that they should pay more because they have more.”

“It’s time for ethics, fairness, and justice to take the floor in Springfield. For decades, we Illinois citizens have enjoyed cut-rate public services at least partially subsidized by the willful, cynical stiffing of pension funds. Let’s fix our money problems without demonizing and punishing public sector citizens/retirees who have done their part, through many decades of teaching and protecting their neighbors, to make Illinois strong.”

Yesterday, I rec’d my annual benefit statement from PERA. They STILL are referring to the Annual Benefit Increase in the current statement !! (not calling it a “cost of living adjustment”).
Under current law, as we all know, there are circumstances that would result in the annual benefit “increase” being ZERO. Naturally that is a non-sequitor. An increase can NOT be “0” by definition.
That is exactly the kind of unclear language that triggers the “cardinal rule” of always interpreting in favor of the retiree, not only now, but in hindsight to the year when the taking occurred. In that year the INCREASE didn’t occur,it was 0, and the named (3.5%) increase subsequently became a decrease (a loss of 1.5%, down to a max. of 2%).
All the rambling about DeWitt, and other cases is just fluff, and distraction. The language is self-explanatory. retirees SHALL receive 3.5% Annual (each year, every year) Benefit increase ( never decrease, never =0). This should have been struck down at the request for summary judgement, or if the legislature had sought legal opinion before bringing it up for a vote.
These takings have been destroyed in other states, Illinois most recently. Let’s see what CSC is made of.

Barry, other states that have contemplated breach of public pension contracts sought out legal opinions from legislative attorneys on the question. Here is an example from Montana. Montana Legislative Services Division Opinion on the Constitutionality of the (GABA) COLA taking:

An injunction has been issued relating to the Montana Legislature’s COLA taking. In Montana, the public pension COLA benefit is called the “GABA,” “guaranteed annual benefit adjustment.”

Why did Colorado PERA administrators choose to seek out a legal opinion in 2009 from a judicially connected former Colorado Supreme Court justice who now has a legal practice that does not specialize in public pension litigation? Why would they not seek an opinion from a law firm that specializes in public pension law? Or, why not request that the Legislature ask its own attorneys for an opinion on the constitutionality of SB10-001?

To their credit, Colorado PERA administrators did initially request that the Legislature send an interrogatory to the Colorado Supreme Court. The Legislature (and or Governor Ritter) rejected this request. This seems to indicate that Colorado PERA administrators and trustees were not in complete control of the contract breach campaign.

During the public hearings for SB010-001, I asked Sen, Brandon Shaffer point-blank whether the Senate would be sending an interrogatory to the Colorado Supreme Court for their opinion. He responded that the laws that are passed are presumed constitutional, and that asking for an opinion before passage would be undermining that assumption. I was struck by how unwilling he was for the Court to issue a preliminary ruling, given the importance of the bill and the questionableness of its legality.

ILLINOIS SUPREME COURT AFFIRMS THE “CARDINAL PRINCIPLE” OF PUBLIC PENSION LEGAL RIGHTS . . . PENSIONERS RIGHTLY GET THE BENEFIT OF ANY DOUBT.

Comments of an Illinois state retiree and former Marine on Illinois’ pension contract breach:

“As I did when I volunteered as a United States Marine Corps service member, when I volunteered for state service, I relied on citizens to have my back. While they seem to support my service in the U.S. Armed Forces, I’m dismayed that my state service is regarded with such enmity. Had I known, I would have eschewed state employment for the increased immediate benefits of private sector employment. Instead of relying on our representative democracy to adhere to the rule of law and keep the promises that were made during my 34 years of state employment, I would have obtained a job in the private sector, demanded and received a much larger salary for my educational level and job requirements . . .”

“I will never forget the abandonment that I’ve felt, nor will I forget the foolishness of my naive trust in the ultimate ‘I’ve got your back’ attitude of every one of us here in the greatest country on Earth.”

Illinois Supreme Court, last Thursday:

“Moreover . . . to the extent there is any question as to legislative intent and the clarity of the language of a pension statute, it MUST (my emphasis) be liberally construed in favor of the rights of the pensioner.” (Prazen v. Schoop.)

“Finally, we point out again a fundamental principle noted at the outset of our discussion. Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.”

“Accordingly, to the extent that there may be any remaining doubt regarding the meaning or effect of those provisions, we are obliged to resolve that doubt in favor of the members of the State’s public retirement systems.”

Colorado Attorney General Duane Woodard in an Opinion of the Attorney General: “In resolving this question, I am guided by the cardinal principle that ambiguities in statutes regulating pension and retirement funds are to be construed in favor of the employee.” (August 14, 1984)

For some reason, the Colorado Supreme Court’s “cardinal principle” of Colorado public pension contractual rights has gone unnoticed in the current litigation of the Colorado public pension contractual rights case, Justus v. State. (The State of Colorado and its pension-administering arm, Colorado PERA, are currently attempting to escape contractual obligations to pay for accrued COLA benefits in the PERA pension system. That is, the State of Colorado does not want to pay its debts.)

Has this “cardinal principal” of Colorado public pension jurisprudence been abandoned? If so, when did Colorado courts abandon this “cardinal principle”? If a “cardinal principle” exists in an area of Colorado jurisprudence, should that “cardinal principle” not be a factor in court decisions in that area of jurisprudence?

What is the typical lifespan of a Colorado Supreme Court “cardinal principle”?

(Keynes has noted, “There is nothing a government hates more than to be well-informed; for it makes the process of arriving at decisions much more complicated and difficult.”)

On Thursday, the Illinois Supreme Court (in a case relating to retiree health benefits) confirmed that contractual public pension benefits in Illinois cannot be retroactively diminished or impaired.

The State of Illinois has some of the worst funded public pension systems in the nation. Nevertheless, the Illinois Supreme Court will not let Illinois politicians off the hook for their past pension system mismanagement. (If they allowed this, moral hazard would certainly be introduced into legislative pension management.)

The Illinois Legislature, like the Colorado Legislature, has not paid its full public pension bills (ARC) for many years, and like Colorado, Illinois has racked up its public pension debt. Also, like many Colorado state legislators, a majority of Illinois state legislators want to escape state debts through breach of public pension contracts.

This recent Illinois Supreme Court decision was surprising to many in Illinois who were under the impression that Illinois’ Speaker of the House Madigan, through political influence, had four of the members of the Illinois Supreme Court in his back pocket.

MADIGAN: “Madigan sounds confident it (the Illinois pension contract breach) will work. ‘I think that there will be at least four members of the Illinois Supreme Court that will approve the bill,’ he said.”

Part of the legal strategy in Illinois was exclusion of judges from the enacted pension contract breach. (I don’t know if Colorado legislators considered, and rejected, this tactic when plotting Colorado’s attempt at a Colorado PERA pension contract breach in 2010.)

A few on-line comments on the Illinois Supreme Court Decision:

“If federal funds were used to pay part of any state employee’s salary and benefits, (this) might be grounds for a federal appeal case on impairment of contracts even if ISC were to rule in favor of SB1.”

“I think we had to go through this exercise too, and I have to say that I’m gratified that the judiciary has proven itself independent of Madigan’s chilling statement of claiming to be able to get 4 on his side. The fat lady is tuning up on SB1.”

“Finally, it looks like the ISC decided they didn’t want to be made the scapegoat for the pension problems and decided to be clear about the General Assembly’s fault in the whole mess.”

(My response: August 16, 2010, “Asked why states are taking the risky strategy of aiming at current retirees, Robert Klausner, a Florida attorney who specializes in public pension law, says many state officials believe they have less to lose in the courtroom by challenging pension protections than taking no action at all. ‘The belief is that if the employer [the state] prevails, it will have been worth the political risk,’ Klausner says. ‘And if they lose, they will be no worse off than before.’ Klausner adds that legislatures are taking the politically-difficult step and letting the courts be the ‘bad guy’ if they overturn the law.”

“Yesterday’s Illinois Supreme Court decision is cause for celebration. Six of the seven judges agreed that the pension protection clause of the state’s constitution meant what it said. Contractual pension benefits between the state and all government bodies in the state cannot be diminished or impaired.”

“But it’s bad news for (Governor) Quinn as well. Aside from his friend Justice Ann Burke (wife of Democratic Machine boss and alderman, Fast Eddie Burke), no member of the court agrees with his plan for pension theft.”

“In a case with ominous implications for the state’s pension reform law, the Illinois Supreme Court ruled today that the state constitution prevents any diminishment of health care benefits for retired state employees.”

“According to the 6-1 decision, the pension protection clause — which says that retirement benefits are a contractual agreement that ‘cannot be diminished or impaired’ — applies to other retirement benefits, not just pensions. That overrode the state’s argument that its emergency powers, in dealing with its budget crisis, justified an increase in what retirees must pay for their health benefits.”

“’This is a major victory for members of state retirement systems,’ said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC who represents retired state teachers and school administrators. ‘I expect it will have a very significant effect on pending litigation’ over the state’s pension reform law. ‘It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.’”

“In an opinion written Justice Charles Freeman, a Chicago Democrat, the court indicated that it would not take a deferential approach. The court said any changes to a pension statute ‘must be liberally construed in favor of the rights of the pensioner,’ quoting one of its own opinions, written in 2013, that involved a dispute over early retirement between an electrical department supervisor and the downstate city of Peru.”

(My comment: An earlier observation by Gino L. DiVito comes to mind: “ . . . a short-lived pension reform that is invalidated by court order after protracted litigation . . . would be a disservice to the taxpayers.”)

“In one key paragraph, the court rejected the idea that the state’s budget crisis could justify a change in retiree benefits.”

“‘In the challenges to the overhaul of pensions for state workers and schoolteachers outside Chicago, the state has argued that changes in the cost of living allowance are not protected by the pension clause because they are not a core retirement benefit.”

“’This definitely shuts down the argument that the COLA isn’t part of the benefit,’ said Amanda Kass, budget director and pension specialist at the Center for Tax and Budget Accountability, a nonprofit advocacy group in Chicago.”

“Again, I stress that this ruling related to the trial court’s decision to dismiss the healthcare case and the Supreme Court was ordering it to be reinstated. Nonetheless that the fact that Court’s opinion was issued by a 6-1 majority of the Justices with such strong language protecting both healthcare and pension benefits gives us a very direct insight into how they view the core issue of statutorily diminished benefits itself..”

“The Illinois Supreme Court ruled today that subsidized health care premiums for retired state employees are protected under the Illinois Constitution, signaling potential trouble for an overhaul of pension benefits that’s also being challenged in court.”

“Retired workers sued, arguing the changes violated a provision in the state constitution that declares pension benefits ‘shall not be diminished or impaired.’ Attorneys for the state argued the constitution did not specifically declare health care benefits were protected.”

“In Thursday’s ruling, the justices argued ‘there is nothing in the text of the Constitution that warrants such a limitation.’”

“’We conclude that the state’s provision of health insurance premium subsidies for retirees is a benefit of membership in a pension or retirement system within the meaning (of the Constitution) and therefore the General Assembly was precluded from diminishing or impairing that benefit,’ justices wrote in their opinion.”

“The same constitutional clause protecting pension benefits is at the heart of several lawsuits challenging broader pension changes lawmakers passed in December. That measure reduces costs-of-living increases and raises retirement ages, among other changes.”

“The high court did not settle that debate in the healthcare case today, but the language in the majority opinion seemed to support the contention that pension benefits cannot be reduced.”

(My comment: I would not describe a requirement that one pay one’s debts as a “fiscal blow.”)

“The Illinois Supreme Court issued an opinion this morning that is a godsend to retired public employees, but a huge blow to the state’s taxpayers and creditors. The ruling concludes that retiree health insurance falls under the protection of the state’s constitutional non-impairment clause. In addition to overturning the attempt to save state taxpayers money on retiree health insurance for public employees, the even bigger implication is what this may say about the constitutionality of the state’s recent pension overhaul.”

“In December 2013, the state passed a controversial pension overhaul bill that was set to take effect earlier this week, but the implementation of which was delayed by a judicial stay, pending various constitutional challenges.”

“Notably the court said today that: ‘we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.’”

“This is as clear of a statement as I have seen on the subject. Essentially, it says to the state that ‘we do not care whether or not you have the money to pay for pensions and health care – you are required to pay them.’ Now it is up to our elected officials to figure out if and how we can afford to do this.”

“Christopher Mooney, director of the Illinois Institute of Government & Public Affairs at the University of Illinois, said before the ruling that a reversal of Nardulli’s decision would indicate the pension reform law could be ruled unconstitutional.”

“‘If you can’t do health insurance, you can’t do pensions either,’ Mooney said.”

“The preamble to Illinois’ pension reform law concludes that the state’s fiscal problems cannot be solved without changes to the retirement system. But Mooney said the argument is ‘not going to fly’ because the state could raise revenue rather than cut benefits.”

(My comment: As we have seen, Colorado state and local governments currently give away thirteen percent of their revenue in the form of corporate welfare.)

“Judge John Belz, who is hearing the consolidated lawsuits, in May stopped the pension law from taking effect on June 1 until the challenges were resolved.”

“Illinois has had the worst-funded pension system among all U.S. states after decades of skipping or skimping on pension payments.”

“The Illinois Supreme Court, in a 6-1 decision today, ruled the health-insurance premium subsidies are pension benefits protected by the state’s constitution that can’t be diminished or impaired, as Illinois lawmakers tried to do with a 2012 law that let an administrator determine the level of contributions.”

“Protection of pension benefits is the same provision in the Illinois constitution retirees are relying on in challenging Quinn’s plan to cut the pension shortfall with reductions in cost-of-living adjustments and increasing the retirement age for workers who are now 45 or younger.”

“The ruling supports the argument that ‘retirement security, including affordable health care and a modest pension, cannot be revoked by politicians,’ Henry Bayer, executive director of the Illinois chapter of the American Federation of State, County and Municipal Employees, said in a statement.”

“Kent Redfield, an emeritus professor at the University of Illinois Springfield, said that while the ruling pertains to a different case, the language used is clear. ‘You could find some way to parse some of it, but it’s really, really difficult. There’s no logical way to get to upholding Senate Bill 1 (the pension reform legislation) based on the clear content of this ruling and the way they’ve construed the pensions clause.’”

“Republican candidate for governor Bruce Rauner has advocated for moving employees’ future benefits to a system that looks more like a 401-K. That plan would go even further than SB1, so it is unlikely that it would be upheld if SB 1 were rejected. But it is possible that the court’s ruling might strengthen his case for offering a defined contribution plan to newly-hired employees.”

“As to that subset of now-retired employees, they allege that the State promised participants in that program that they would receive free health insurance if they established at least 20 years of creditable service and that the subset of plaintiffs who took early retirement reasonably and detrimentally relied on the State’s promise by, among other things, retiring from state service AND MAKING CASH PAYMENTS TO OBTAIN ADDITIONAL SERVICE CREDITS (my emphasis). That subset of plaintiffs claim that, under these circumstances, the State should not be permitted to renege on its promise and should be enjoined from withholding health insurance premiums from the annuity payments owed to the early retirees.”

(My comment: Many Colorado PERA retirees have purchased service credit in the PERA pension system. I believe that these separate public pension contracts have also been violated under SB10-001. The Colorado PERA service credit statute requires that the benefits in place at the time of purchase of the service credit must be provided.)

“The complaint in the Bauer v. Weems case also challenges Public Act 97-695 on the ground that it constitutes an impermissible impairment of contract in violation of the contracts clause (Ill. Const. 1970, art. I, § 16).”

“Moreover . . . to the extent there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.” (Prazen v. Schoop.)

” . . . it is clear that if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired.”

“Delegates were also mindful that in the past, appropriations to cover state pension obligations had ‘been made a political football’ and ‘the party in power would just use the amount of the state contribution to help balance budgets,’ jeopardizing the resources available to meet the State’s obligations to participants in its pension systems in the future.”

“It does so, he explained, in order to protect ‘public employees who are beginning to lose faith in the ability of the state and its political subdivisions to meet these benefit payments’ and to address the ‘insecurity on the part of the public employees [which] is really defeating the very purpose for which the retirement system was established.”

“In light of the constitutional debates, we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

“Defendants observe that health care costs and benefits are governed by a different set of calculations than retirement annuities. While that is unquestionably true, it is also legally irrelevant.”

“Finally, we point out again a fundamental principle noted at the outset of our discussion. Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner. This rule of construction applies with equal force to our interpretation of the pension protection provisions set forth in article XIII, section 5. Accordingly, to the extent that there may be any remaining doubt regarding the meaning or effect of those provisions, we are obliged to resolve that doubt in favor of the members of the State’s public retirement systems.”

From the dissent of one Illinois Justice hearing the case:

“Stated otherwise, by its plain language, the pension protection clause prohibits legislative action that diminishes or impairs pension benefits by altering the terms of the contract governing the pension.”

Statement of Illinois Senate President John Cullerton on the Illinois Supreme Court Decision:

“Today, the Illinois Supreme Court made it very clear that the Pension Clause means what it says.”

“The Court cannot rewrite the Pension Clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve.”

“The Clause was aimed at protecting the right of public employees and retirees to receive their promised benefits and insulate those benefits from diminishment or impairment by the General Assembly.”

“If the Court’s decision is predictive, the challenge of reforming our pension systems will remain.”

Statement from AFSCME:

“’The Supreme Court ruled today that men and women who work to provide essential public services — protecting children from abuse, keeping criminals locked up, caring for the most vulnerable and more — can count on the Illinois Constitution to mean what it says,’ AFSCME Council 31 executive director Henry Bayer said. ‘Retirement security, including affordable health care and a modest pension, cannot be revoked by politicians.”

“’Unions representing public employees and retirees have stood virtually alone against political and corporate-funded attacks on retirement security,’ Bayer added. ‘Time and again we have urged legislators to respect the constitution they are sworn to uphold, and to work together with us to develop fair and constitutional solutions to the state’s very real fiscal challenges. We remain ready to work in good faith with anyone to do so.’”

Here are a few selected comments, from the many, that have been posted about the Supreme Court Decision at the Illinois political news site, Capitol Fax:

“Even though (Senate President) Cullerton’s plan was agreed to by a lot of people, it wasn’t in compliance with the contract clause or the pension clause. It would have been found unconstitutional also, maybe just not with as many votes.”

“Sounds like the Supreme Court decision for SB1 is embedded within this ruling. ‘Finally, we point out again a fundamental principle noted at the outset of our discussion. Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner. This rule of construction applies with equal force to our interpretation of the pension protection provisions set forth in article XIII, section 5. Accordingly, to the extent that there may be any remaining doubt regarding the meaning or effect of those provisions, we are obliged to resolve that doubt in favor of the members of the State’s public retirement systems.”

“Keep in mind the Pension system does not need to be funded 90% like the legislature and Quinn have pushed for. In fact most Pension Systems are not even close to that number.”

(My comment: The proponents of SB10-001 in Colorado propose that their contract breach achieve an unnecessary standard of 100 percent PERA pension funding. This level of funding has been achieved only twice in PERA’s history.)

“This really shouldn’t be a surprise to anyone. Don’t make promises you don’t intend on keeping.”

Comments of an Illinois state retiree and former Marine:

“As I did when I volunteered as a United States Marine Corps service member, when I volunteered for state service, I relied on citizens to have my back. While they seem to support my service in the U.S. Armed Forces, I’m dismayed that my state service is regarded with such enmity. Had I known, I would have eschewed state employment for the increased immediate benefits of private sector employment. Instead of relying on our representative democracy to adhere to the rule of law and keep the promises that were made during my 34 years of state employment, I would have obtained a job in the private sector, demanded and received a much larger salary for my educational level and job requirements . . .”

“I’m a veteran of the USMC, and I appreciate all the gratitude that I get for that service. Is state service comparable? Absolutely not. I risked my life in service of my country as a Marine. I never expected to be accorded the same level of appreciation for my service to the state, but I did expect our representatives, and by proxy of your vote for them, to keep their promises, whether they were constitutionally protected, or not.”

“Instead, now I have been relegated to being one of ‘them.’ Abandoned by many who feel that they have no stake in the malfeasance of their representatives, and who expect me, alone, to shoulder the burden of their incompetence.”

“I’m a United States Marine. I don’t give up. And while I will always support the United States, I will never again support those who feel that any minor impairment of their financial condition takes precedence over the slow financial death of my family and I.”

“I will never forget the abandonment that I’ve felt, nor will I forget the foolishness of my naive trust in the ultimate ‘I’ve got your back’ attitude of every one of us here in the greatest country on Earth.”

“I’ll pass that on to my friends and family. I’ll also recommend that anyone working for the state, get everything up front in wages and salary because, ultimately, you cannot trust that anyone ‘has your back.’”

The following comment called to mind the fact that Colorado’s public sector unions (our “union bosses”) supported the 2010 Colorado PERA pension contract breach in SB10-001. Pensioners no longer pay union dues:

“The problems of the state fiscal are not the problems of the pensioners. Any ‘Union Boss’ negotiating any retreat or surrender is clueless at this point moving forward.”

“‘Where are Madigan’s 4 votes?’: ‘I’m sorry, but this is flat-out offensive to me. Madigan owns no one on this court. Anyone who knows any of these justices or follows the Court is fully aware of that.”

“I’m not sure if state employees/retirees will ever be out of the spotlight that we never wanted to be in.”

“Completely agree with you . . . We as retirees or current state employees never asked for all of this negative attention or to be blamed for the state’s fiscal problems when we in fact have never been the cause of the problem. I have been a lifelong IL resident and also worry greatly about our state’s future, but please lay the blame for our current problems where it deserves to be and not on us retirees.”

“Once the conditions of the contract are fulfilled, you can’t unilaterally change the contract terms retroactively.”

“There are ways to legally change a contract retroactively, but it normally requires the agreement of BOTH parties to the contract, and it usually also requires a payment (or other valuable consideration) by one of the parties to the other party.”

“Think of it like a fixed rate car loan or fixed rate mortgage, where the bank wants to change the terms of the deal after you’ve been paying on the loan for years. Law says you can’t do it unless you have violated the terms of the loan (contract) that you signed.”

“For those that are upset and make claims of unfairness to other citizens of the state, know that this a legal decision, and in my view the decision was proper. If the state makes commitments, it needs to keep them. If the constitution has plain-language protections, that’s how you read them. The pols have for too long pandered for votes and power with taxpayer money. Now, maybe some of the pandering will be stopped.”

“Thanks to AFSCME, IFT, and IEA for continuing to fight for public employees and retirees while other unions and many liberal Democratic legislators failed to do so.”

(My comment: Again, in Colorado, public sector unions tossed their retired members under the bus and supported the breach of Colorado PERA pensioner contracts in 2010. This act sullied the U.S. Labor Movement.)

“We may still be a land of laws… a big win for every citizen of Illinois.”

“The court ruled that Healthcare is definitely a benefit of membership in the pension system. Certainly, current annuitants relied on that in making an irrevocable decision to retire. I see no reason to assume that the AAI, which is much more related to the pension itself than is healthcare premiums, will not be ruled a pension benefit too.”

“This is the correct decision. It is also the Supreme Court declining to give the General Assembly a pass for years of mismanagement and the lack of political will to raise taxes.”

(My comment: The historical mismanagement of the Colorado PERA pension system by Colorado state legislators and Colorado PERA trustees has been documented at the website, saveperacola.com and at ColoradoPols.com.)

“After reading Burke’s dissent, I think she would also vote against SB1, which would make a decision against it unanimous.”

“The constitution can be changed, but the changes cannot be applied retroactively.”

“Cullerton’s deal is off the table. The unions won’t budge after this ruling. Woulda shoulda coulda.”

“The contract is between the state and me, and the state and you, and the state and thousands of other individuals. Cullerton, nor any other politician can negotiate with ‘the unions’ about the contract between the state and me. I think the decision today clearly upholds those thousands of individual commitments. None of which involves a union.”

“It’s hard as a beneficiary to not cheer this ruling, but it’s equally hard as a citizen and taxpayer to not grieve for lost opportunity, or at least lost time.”

“Now generally I am against tax increases of any kind regardless of income level. But I am also a state employee and I didn’t start this fight. The millionaires of the Chicago Civic Club started it. So, a graduated tax on people like Rauner who want to buy the Governor’s office? I would be happy to vote for that.”

“I totally agree, but the supporters of SB1 used going through this exercise in futility as an excuse for passing these onerous bills in the first place. They’ve received the ISC’s answer. They threw everything, including the kitchen sink, at the Supremes to see what would stick, and I would argue that very little, and most likely none of it will ultimately stick.”

“Throughout all this, I’ve been an Illinois citizen and taxpayer. As a member of that unfortunate club, it’s time to get down to the business of properly funding the state’s priorities going forward. We’re in for some hurt brought to us by 60 years of political incompetence on both sides of the aisle. But, as we were when this started, we’re all in this together, and equally so. We better all get back to solving the state’s big problems in a constitutional way, and the sooner the better. I’ll vote for any candidate that lays out an equitable plan to do so, and stops with the political hedging that both side’s politicians think they can get away with.”

“These ‘new tier’ programs are the only ones that seem to constitutionally survive.”

“All the State workers reading Cap Fax instead of doing their job… REJOICE!!!”

“SB1 is road kill that just got run over by a steamroller: ‘Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it MUST be liberally construed in favor of the rights of the pensioner.’ (again, emphasis in caps.)”

“Haven’t prior S Ct cases indicated that one becomes a member of a pension system upon being hired (not just upon retirement) and that the terms of the system upon the date of hire can’t be diminished? I thought so, and that this was why the Tier 2 class was structured as applying to those hired on or after that certain date.”

“The bill is due, it’s not about how we can screw retirees and current workers anymore–it’s how do we pay them what they were promised and the Court has guaranteed.”

“You become a member of a retirement system when you start paying into it.”

“We’re going to have to have a sales tax on as many services as Indiana does. What is it currently? 17 vs. 51 services? We’re also going to have to pass the Fair graduated income tax.”

“I was drawing a parallel with the various arguments Madiar presented in his pension analysis with what the ISC came down with here. Yes, Eric (Madiar) never really addressed the issue of health care being protected, but he touched on all the relevant cases that the ISC touched on in this opinion. To me, there is something like an 85% – 90% parallel.”

“One could argue that Illinois, as a large progressive state, has had lower than expected taxes for its spending levels, since some of its ‘revenue’ (since 1939) was ‘borrowed’ from mandated (but unpaid) state pension fund contributions.”

“It can’t be fixed by a constitutional amendment not due to ex post facto law limits (technically, that only applies to criminal laws), but due to the analogous ‘impairment of contract’ and due process considerations. Same basic concept, but different legal doctrine categories.”

“I’m glad the rule of law and plain language was upheld, but I expected more wiggle room; guess the ISC wanted to put this issue to bed once and not have to revisit it any time soon.”

We are going on a month since the oral arguments, and we now know that the money is flowing into PERA, negating any claim to an “actuarial necessity”. The ABI is due at the end of July, and I’m curious to know if they will reach a ruling before then. I also wonder, if anyone knows, assuming we win, how will we get the retro-active compensation and compounding that we have lost since the law was passed?

There is no way to know when a ruling will be made by the Colorado Supreme Court…until they issue a notice on their website. Rulings are usually issued on a Monday. Once we know, we will let you know here. The answer to your last question is a clear “no”. That is for a court to determine, if and when there is a favorable ruling that would make it necessary.

You may quickly search all of the announcements for this case by searching for Justus (sic) in the box in the upper right corner labeled “Can’t find it?” If you find it, then you may click on the court’s blue link to read the decision.

THE COLORADO JUDICIAL BRANCH IS NOT A POLITICAL TOOL OF THE COLORADO LEGISLATIVE BRANCH.

The State of Colorado is currently attempting to escape its financial obligations through breach of contract. The U.S. Supreme Court has directed appellate courts to give heightened scrutiny to attempts by state governments to escape their financial obligations. Has this heightened scrutiny of the State of Colorado’s attempt to break its contracts occurred? To date, no trial, no discovery has occurred relating to the State of Colorado’s attempt to escape its contractual obligations.

The sponsor of the 2010 bill that seeks to break Colorado state contracts admits the existence of the contract. In 2009, lawyers for the Colorado state agency administering the contract admitted (in writing) the existence of the contract. Indeed, the Colorado Court of Appeals, in 2012, confirmed the existence of the contract. Yet, today, lawyers for the State of Colorado persist in arguing that the contract does not exist.

From the website of the Colorado Judicial Branch:

“The principle of judicial independence is central to a functioning democracy. Essentially, this means that the courts are shielded from politics or any other force that could compromise its independence and institutional independence.”

“Our time tested adherence to the Rule of Law and our system of justice is the envy of the world. Maintaining this system as envisioned requires that we have a fair, impartial, and independent judiciary that enforces the Constitution and settles all disputes according to the rules. All citizens, regardless of who they are or what they represent, have the right to a fair and impartial hearing. And it is often the role of our courts to protect the unpopular or the minority. Public trust and confidence in our courts will only be preserved for so long as we stay this course.”

“Independent judges, as my colleague Justice Ginsburg recently put it, do not act on behalf of particular persons, parties, or communities. They serve no faction or constituency, and they must strive to do what is right in each individual case, even if the case in question should find the least popular person in America opposed by the most powerful government in the world.”

Senator Josh Penry, co-prime sponsor of the 2010 Colorado legislation breaking Colorado PERA pension contracts (SB10-001) acknowledges the existence of the Colorado PERA pension COLA contract, and states that the Colorado Legislature (the 61 member majority voting for the bill in 2010) seeks to break the contract.

Senator Josh Penry stated, during the legislative effort to break PERA pension contracts, that the Colorado Legislature was taking advantage of a “window of opportunity” to persuade Colorado courts to permit the PERA contract breach. The SB10-001 bill sponsor has admitted (on videotape) that the proponents of the bill intended to expedite passage of the bill to ensure that it would become law before the release of pending investment performance figures for the Colorado PERA portfolio were released later in 2010.

Thus, the sponsor of SB10-001 admitted the intent of state legislative sponsors of the bill to manipulate Colorado courts through the timing of the legislation, SB10-001. Senator Josh Penry knew that improved investment performance figures would be released by Colorado PERA administrators four months after the bill, SB10-001, was signed by Governor Bill Ritter. Given the performance of equity markets in 2009, it was evident to all involved that Colorado PERA (and all other equity investors) would report significant portfolio gains for calendar year 2009 undermining any argument for the “actuarial necessity” of the legislative taking.

In short, the sponsor of the Colorado public pension bill that is the subject of litigation, stated on videotape, that the Colorado PERA COLA benefit is a contractual obligation, and that short-term market volatility should be used to persuade Colorado courts to sanction the breach of state contracts. However, Colorado PERA pensioners do not bear any market-risk under their contracts. U.S. equity markets have risen approximately 140 percent from their 2009 low point.

In a videotaped discussion with Representative Mike May, (videocenter. denverpost.com) Senator Josh Penry, said ‘we can’t, can’t miss this window.’ And, . . . we have an opportunity to pass something that Republicans have long advocated, a significant increase in retirement age, which the PERA Board embraced, reigning in the cost of living increases . . .”

“Penry went on to say, ‘I think it is important to pass something because if you lose actuarial necessity, as you know, it becomes extremely difficult to increase retirement age. You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”

Transcript of remarks by Senator Josh Penry, R-Fruita, (appearing on “Your Show,” Channel 20 with Channel 9 News (KUSA-TV) host Adam Schrager on January 10, 2010 at 10:30 a.m.
Adam Schrader: ” . . . can (it) be cut, because it’s part of the contract, but has it been reviewed by the Attorney General? Can you do this legally? Can you take 3.5% guaranteed and move it down to what is it, 2%? Can you do it?”

Senator Josh Penry: “2%, yah, yah, we can. I mean, what the courts have said with the case law and opinions have said is that you can’t, it is a contract unless there is actuarial necessity . . .” “So what the courts have said from a legal standpoint, as long as there is actuarial necessity, as long as there is a bona fide emergency, it is okay.”

(Note that in this interview even the sponsor of the bill admits that the Colorado PERA COLA benefit is a contractual obligation of Colorado PERA-affiliated employers.)

Have Colorado courts given the required “heightened scrutiny” to the Colorado Legislature’s 2010 attempt to escape state financial obligations? Certainly the fact that the sponsor of SB10-001 acknowledges the Colorado PERA COLA contractual obligation would be observed by a Colorado court at trial.

Since 2009, Colorado politicians and pension administrators have employed many political tools in their attempt to break contracts to which the State of Colorado is a party. They have used the assets of Colorado PERA pensioners in political, legal, and public relations campaigns to break the pensioner’s contracts. Apparently, many Colorado politicians would be happy to usurp the authority of Colorado courts, and render the Colorado Judicial Branch a mere political actor for the Colorado Legislative Branch.

This sentiment, using courts for political purposes, is at the heart of Colorado’s 2010 bill that seeks to break Colorado PERA pension contracts. As noted above, the co-prime sponsor of the SB10-001 State Senator Josh Penry, has stated the desire of the proponents of SB10-001 to use 2008 market volatility as “a window of opportunity” for the Colorado Legislature to claim “actuarial necessity” and escape state contractual obligations. The co-prime sponsor of SB10-001 did not try to conceal the desire of the proponents of the bill to manipulate Colorado courts to achieve a legislative political goal, breach of state contracts.

But, it is not the role of state appellate courts to unquestioningly embrace constitutionally impermissible political objectives of state legislatures. An appellate court in New Jersey made this clear in a decision just last week.

’It is not the courts’ role to run the pension systems,’ Reisner wrote. ‘Our responsibility is to interpret and apply the constitution in light of the evidence, and we will do so.” “’But to a very great extent, the strength of the pension systems rests on policy choices made by the other two branches of government, and on their political will to preserve the systems and satisfy prior commitments made to public employees and retirees.’” “Under settled law, for the state to be able to break the COLA contract, it must show at the trial court that the harm to retirees is not ‘substantial,’ that the government is breaking its agreement for a ‘reasonable public purpose,’ and that the freeze is related to ‘appropriate governmental objectives.’”

In 2010, the Colorado Legislature enacted a bill (SB10-001) that took contracted public pension COLA benefits from pensioners who possess “fully-vested” contractual rights in the Colorado PERA pension system. The U.S. Supreme Court has directed appellate courts to give heightened scrutiny to attempts by state governments to escape their own financial obligations.

The defendants in this lawsuit, Justus v. State, were granted summary judgment by Judge Hyatt of the Denver District Court in 2011 (prior to his retirement) in a Decision that failed to even mention Colorado case law that is clearly relevant to the case (Bills and McPhail.) This Colorado case law was referenced in a Colorado Attorney General’s Opinion addressing contractual public pension rights in Colorado. This undeniably on-point Colorado case law was cited even by laymen, by persons with no legal training, as the Colorado Legislature began contemplating breach of state contracts in 2009. Later, this Colorado case law was confirmed as dispositive in the case, Justus v. State, by the Colorado Court of Appeals. Since the Denver District Court granted the defendants in the case summary judgment in 2011, there was no opportunity for the process of discovery in the case.

Where even a routine process of legal discovery has not yet occurred in litigation involving a state’s attempt to escape financial obligations, can heightened scrutiny be said to have occurred? Can heightened scrutiny be claimed where summary judgment was granted in a decision with no mention a state’s on-point Colorado Supreme Court case law? Can heightened scrutiny be said to have occurred where the complete recorded legislative history of a contractual obligation has received no judicial scrutiny? As summary judgment was granted by the Denver District Court in this case in 2011, facts that are critical to supporting the constitutional rights of Colorado PERA pensioners have not been discovered or reviewed by Colorado courts.

There is no question that the Colorado PERA COLA benefit is a contractual obligation of Colorado PERA-affiliated employers. Colorado PERA administrators and PERA’s lawyers should end the charade. The evidence of this contractual obligation is plain and conclusive to any person who can read and who spends a few minutes looking for it.

The statutory language creating the Colorado PERA COLA benefit is clear, and identical to the statutory language creating the Colorado PERA pension base benefit. The legislative history establishing the Colorado PERA COLA benefit is clear. Colorado PERA’s lawyers have confirmed the “automatic” COLA contract (in written testimony to the Legislature.) The bill sponsor has confirmed the existence of the PERA COLA contractual obligation. The Colorado Court of Appeals has confirmed the PERA COLA contractual obligation.

The United States Supreme Court has determined that state attempts to escape their own financial obligations shall receive very little deference. In 1977, the United States Supreme Court accepted an appeal of a decision of the New Jersey Supreme Court in the case, United States Trust Company of New York v New Jersey (U.S. Trust.) From the U.S. Supreme Court decision in U.S. Trust:

“Any financial obligation could be regarded in theory as a relinquishment of the State’s spending power, since money spent to repay debts is not available for other purposes. Similarly, the taxing power may have to be exercised if debts are to be repaid. Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts.”

(My comment: If one accepts the premise that additional Colorado state and local government resources are required to meet Colorado PERA contractual obligations, although these PERA obligations consume less than three percent of all Colorado state and local government revenues, it should be noted that the Colorado Legislature has not yet exercised its constitutional powers to refer a measure to Colorado voters seeking sufficient revenue to meet these Colorado PERA contractual obligations.)

U.S. Trust:

” . . . complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State’s self-interest is at stake. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”

” . . . a State cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”

“But a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”

It is simply the case that Colorado politicians want to break the Colorado PERA statutory contract and they want the Colorado Judicial Branch as their partner in the Colorado PERA pension contract breach. Colorado politicians are asking that the Colorado Supreme Court ignore the Colorado Constitution, on-point Colorado case law, a Colorado Attorney General’s Opinion, and U.S. Supreme Court precedent to help the politicians achieve a desired political outcome.

The question remains whether the Colorado Supreme Court, leading an independent branch of Colorado government, can possibly ignore clear, copious, widely available evidence establishing the PERA COLA benefit as a contractual obligation. The Colorado Judicial Branch is not simply another political tool of the Colorado Legislative Branch.

For the Colorado Supreme Court to give heightened scrutiny to the State of Colorado’s 2010 attempt to escape its financial obligations the court must, at a minimum, examine the complete legislative history of the Colorado PERA COLA benefit. The legislative history of the PERA COLA benefit establishes, at the inception of the “automatic” PERA COLA benefit, that the COLA benefit is a contractual obligation of PERA-affiliated employers.

The legislative history of the Colorado PERA COLA benefit includes legislative testimony by Colorado PERA’s representative Rob Gray that the PERA COLA benefit that the Legislature is placing into Colorado law is a “permanent” pension benefit, that PERA pensioners can rely on the pension benefit in retirement, that the PERA COLA is a “liability” of the Colorado PERA pension system, and that the permanent PERA COLA created “adds to the unfunded liabilities” of the PERA pension system. Indeed, a member of the House Finance Committee at the legislative hearing creating the “automatic” PERA COLA benefit described the PERA COLA as “guaranteed,” “now and in the future.”

The legislative history of the Colorado PERA COLA benefit makes it plain that, as acknowledged in 2009 by Colorado PERA’s lawyers and the sponsor of SB10-001, that the PERA COLA benefit is a contractual obligation of the State of Colorado and other employers in the PERA pension system.

Rob Gray, testifying to the Legislature’s House Finance Committee in regard to the “automatic” PERA COLA benefit under consideration [in House Bill 93-1324]: “The PERA Board does support this bill.” “We felt like it is something that is good pension policy . . . that it makes sense . . . THAT IT IS MAKING PERMANENT CHANGES, and also that it does help employers which is one of the goals of the bill.” Rob Gray states that the proposed COLA “adds predictability for current and future retirees, people looking at leaving might look at this and say now I know how my future increases are going to be determined . . .” Rob Gray characterizes the “automatic” PERA COLA benefit as a Colorado PERA liability: “when a change in benefits is added, like this bill, it extends out the period for paying off that unfunded liability.” If you listen to the recording of this meeting, you will also hear a member of the House Finance Committee refer to the Colorado PERA COLA provision under consideration as a pension benefit that is “guaranteed,” “now and in the future.” [Note that the contracted PERA COLA benefit adopted by the committee was in later years improved by the Colorado General Assembly to flat 3.5 percent level, constitutionally permissible as this “improvement” did not impair PERA pension contracts.])

The plaintiffs in the case, Justus v. State, have informed the Colorado Supreme Court that the Colorado Legislature has failed to pay its public pension bills (actuarially required contributions,) that the PERA COLA is an “automatic” pension COLA benefit as opposed to an “ad hoc” pension COLA benefit, that discovery has not occurred in the case, and that the attempt by the State of Colorado to escape its financial obligations must receive heightened judicial scrutiny.

“However, the Legislature has continually kept contribution rates below the annual required contribution as determined by PERA’s actuaries. In a March 2010 Report, the Pew Center on the States reported that Colorado contributed only 68.3% of its full actuarial required contribution over the past 10 years, and flagged it as one of ten ‘lagging’ states.”

The Plaintiffs Amended Opening Brief (page 8) informs the Colorado Supreme Court that the Colorado PERA COLA is an “automatic” public pension COLA benefit, as opposed to an “ad hoc” public pension COLA benefit:

“In 1993, the Legislature amended this provision to make annual COLA increases granted on or after March 1, 1994 AUTOMATIC (my emphasis) and no longer dependent each year on approval by the legislature.”

The Plaintiffs Amended Opening Brief (page 29) informs the Colorado Supreme Court of the U.S. Supreme Court’s determination that state attempts to escape state contractual obligations shall receive heightened scrutiny, quoting U.S. Trust:

“A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contracts Clause would provide no protection at all.”

The Plaintiffs Opening Brief (page 31): “Requiring the petitioners to protect the future solvency of the pension system is an unconstitutional shifting of the state’s own burden.”

“As this case was decided on summary judgment, Defendants, as the moving parties, had the burden of establishing the non-existence of a genuine issue of material fact.”

Page 9, “However, the current record is not the full record since discovery has not been completed.”

Page 12, “Especially given that Defendants have the burden of proof, Retirees should at the very least be provided the opportunity to conduct full discovery and present evidence to the District Court that a ‘more moderate course would serve [the Defendants’] purposes equally well.'”

Page 21, “In addition, Retirees should at the very least be entitled to conduct discovery on the State’s culpability in contributing to the funding deficits, and have a court determine whether it is reasonable for Retirees to now pay for the State’s conscious choice to fail to adequately fund PERA by keeping employer rates artificially low.”

The Colorado Judicial Branch exists to maintain rule of law in Colorado. I do not believe that the Colorado Supreme Court might willfully ignore, or allow to be ignored, clear evidence of the contractual nature of the PERA COLA benefit (including the testimony of Colorado PERA’s own lawyers) when that evidence is so readily and widely available.

For the Colorado Judicial Branch to allow the Colorado Legislative Branch to ignore Colorado public sector financial obligations based on a contrivance that the word “SHALL” means one thing in Part 6 of the PERA statutes, and another thing 23 pages later, in part 10 of the PERA statutes would be a travesty of justice, rendering the Contract Clause meaningless.

Colorado PERA retirees insist that the Rule of Law in Colorado will not be abandoned at the whim of Colorado politicians.

“NJ court: Retired public workers have a contract right to cost-of-living adjustments.”

“A state appeals court ruled today that New Jersey’s nearly 300,000 retired public workers have a contract right to yearly increases in their pension benefits, and those cost-of-living adjustments are part of the state’s benefits package.”

“Today’s ruling, Ouslander said, means ‘those benefits cannot be withheld or denied unless the state establishes a basis to impair, i.e., break, the contract between it and pension members.'”

NJ.com citing the Appellate Court Decision:

“’It is not the courts’ role to run the pension systems,’ Reisner wrote. ‘Our responsibility is to interpret and apply the constitution in light of the evidence, and we will do so.”

“’But to a very great extent, the strength of the pension systems rests on policy choices made by the other two branches of government, and on their political will to preserve the systems and satisfy prior commitments made to public employees and retirees.’”

“Under settled law, for the state to be able to break the COLA contract, it must show at the trial court that the harm to retirees is not ‘substantial,’ that the government is breaking its agreement for a ‘reasonable public purpose,’ and that the freeze is related to ‘appropriate governmental objectives.'”

“’It’s one thing to change the rules in the middle of the game, it’s another to change the score after the game’s over, and that’s what the state did when it eliminated the COLAs,’ said Charles Ouslander, one of the plaintiffs in the Berg case.”

“‘A reversal of Judge Hurd’s decision by the appellate court would not only protect pensioners’ contractual rights to receive their full pension benefits, but would also insure that the state keeps its contractual obligation to properly fund the pension system, based on the 2011 law signed by Governor Christie,’ Ouslander added.”

“The court decided these payments constituted a contractual right, making it far more difficult for the Christie administration to argue that they can be suspended. The case, which was brought by the unions, will now be heard again. A lower court will decide whether the state’s decision to break the contract and stop paying the cost of living amounts was ‘reasonable and necessary to serve an important public purpose.’ Over time, pension increases from cost of living increases can make up a substantial portion of a pension fund’s overall responsibility. John Bury, an accountant who blogs about pensions, said that over the last two years, COLA payouts would have increased New Jersey’s obligations by about $500 million.”

“Now fast forward to Colorado 2010 where the state cut back COLAs and brought on this morass of litigation. Would the Knicks be able to do the same thing to (the private sector contract of) Tom Riker . . .? What if they wanted to spend that money for other purposes that they considered more significant and legitimate and it was reasonable and necessary to reduce his payments? Could the Knicks get away with that? And if they did would anyone ever sign another contract with them? Then why should Colorado?”

“We reverse the grant of summary judgment in Berg and New Jersey Education Association v. Christie . . . and we remand Berg to the trial court for further proceedings required to address plaintiffs’ Contract Clause claims under the New Jersey Constitution.”

Cited by the Appellate Court:

“Beginning in the mid-1990’s, a series of Executive and Legislative
policy decisions — which the State later characterized as short-sighted — resulted in underfunding of the pension systems.”

(My comment: The Colorado Legislature has not paid its full Colorado PERA pension system actuarially required contribution for the last twelve years. Former Colorado PERA Executive Director Meredith Williams, February 23, 2012:

“We’ve had a significant problem over the years, in that . . . contributions, payments by [PERA] employers into PERA have been kind of the last thing in the budget building process, and we have not made the required payments. Unfortunately, in our line of work, where we’re involved in compounding shortfalls grow, particularly when the shortfalls continue year after year after year.”)

New Jersey Appellate Court Decision:

“In 2011, however, the Legislature made significant changes to public employee pension and health care benefits, including the suspension of automatic COLAs for current and future retirees.”

“In a press release accompanying the bill, the Governor stated that ‘pension funds are considered to be adequately funded if their AVA funded ratio is at or above 80% [the federal standard for ‘at-risk’ funds.]”

(My comment: Note that, in the 2010 Colorado bill taking the PERA pension COLA benefits of Colorado PERA pensioners, SB10-001, the Colorado Legislature proposes to take Colorado PERA pension benefits until a 100 percent funded ratio is achieved. This lofty and unnecessary level of funding has occurred in only two fiscal years during Colorado PERA’s 83 years.

From: PERA Shareholders Meeting Fall 2006 document:

“Note that PERA was over 100% funded in only two years of our 75 year history.”

“PERA directs its efforts at keeping the funding ratio, [AFR, the ratio of actuarial assets to accrued liabilities] for the three divisional retirement funds at a minimum of 80 percent. A funding ratio over 80 percent is considered good.”

“Note that PERA’s funded status was lower 30 years ago than it is now. You may recall that there was no perceived ‘crisis’ in PERA’s funded status in 1975.”

“What the PERA Board and staff would like is for the funded status curve to be flat or stable at around 80 percent. Why? Because not all benefits are due and payable today or tomorrow . . . PERA can weather the ups and downs in the markets.”

“Plaintiffs alleged the suspension constituted a breach of express and implied contract (counts one and two), violated the Contract and Due Process Clauses of the Federal and State Constitutions (counts three, four, and six), and violated their state civil rights (count five).”

(My comment: Public pension legal scholar Professor Amy Monahan notes that the Denver District Court’s initial decision in the case, Justus v. State, was surprising in light of Colorado public pension case precedent:

“The (Denver District) court’s ruling is surprising both because the court appeared to break from earlier Colorado decisions that found pension benefits to be contractually protected prior to retirement and because the change could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

Professor Monahan on the public pension legal doctrine, the “California Rule” (embraced by Colorado courts):

“The (Denver District) court’s ruling is surprising both because the court broke from the previously endorsed California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

Meredith Williams, Colorado PERA Executive Director: “The AG’s opinion states that when a PERA member retires and begins receiving pension benefits such member’s pension rights have fully vested and such pension benefits may not be reduced.”)

New Jersey Appellate Court Decision:

“There is no dispute that, at the current time, there are sufficient funds in the pension systems to pay COLAs to current retirees. Moreover, pensions are neither funded by appropriations on a pay-as-you-go basis, in the way that COLAs used to be, nor is their payment contingent on the making of a current appropriation.”

(My comment: Note that the Colorado Legislature struck the “ad hoc” PERA COLA language from Colorado law in 1993. Since that time, the Colorado PERA pension statutes have provided an “automatic” pension COLA benefit that may not be diminished by the Legislature for pensioners who have fully-vested contracts.)

New Jersey Appellate Court Decision:

“During the years that the State skipped making its pension contributions, the pension systems continued paying COLAs to retirees. In fact, in 2010, the State assured this court that the pension systems were capable of paying out benefits for the next thirty years, despite the State’s failure to make its contributions to the funds.”

(My comment: August 11, 2009, Colorado PERA Board Trustee Casebolt assures PERA retirees present at Colorado PERA Denver meeting of the PERA “Listening Tour”: “PERA faces no immediate danger of being unable to pay benefits, in fact, PERA can pay benefits for many years to come, based on our current funding and our benefit structure coupled with over $30 billion in assets, at present market value.”

August 14, 1984 Colorado Attorney General Duane Woodard in an Opinion of the Attorney General: “In resolving this question, I am guided by the cardinal principle that ambiguities in statutes regulating pension and retirement funds are to be construed in favor of the employee”

“During the May 20, 1996 hearing, a union-retained actuary explained the employees’ concern that, as a result of skipping pension payments, the State would eventually find itself facing a need to make a much larger contribution in the future, would balk at such a large expenditure, and would instead try to cut benefits.”

“Senator Inverso responded: I feel strongly that the same protections and rights that are accorded . . . under an ERISA [Employee Retirement Income Security Act] standard to people in the private sector, should be accorded to people in the public sector, the governmental sector; that once they have their pensions established as at a point in time with regard to vesting it, that you cannot go back retroactively and change what has been earned, what has been accrued, what has been vested in.”

“In a recent case, the State conceded that retirees have a contractual right to the basic pension benefit they began receiving upon retirement.”

(My comment: December 16, 2009, Colorado PERA officials in written testimony to the Joint Budget Committee: “The General Assembly cannot decrease the COLA [absent actuarial necessity] because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

“As previously discussed, both opinions advised that N.J.S.A.
43:3B-9.5 created a contractual right to pension benefits, and hence the State could not diminish vested pension benefits unless it could satisfy the constitutional standards under which the State may impair the obligation of a contract.”

(My comment: “Indeed, the National Association of State Retirement Administrators issued a recent study that showed that, on average, pension costs represent only about 3 percent of total state and local government expenditures. In Colorado, state and local government expenditures to fund retirement benefits totaled only 2.16 percent.”

“As previously discussed, while COLAs were originally funded by annual appropriations, and could be denied if the Legislature failed to make an appropriation, N.J.S.A. 43:3B-5, that system was abandoned decades ago.”

“Instead, through amendments adopted in the late 1980’s and early 1990’s, COLAs are funded in the same way that the regular pension benefits are funded, and COLAs are payable from each of the applicable pension funds.”

(My comment: As we have seen, HB 93-1324 struck the former “ad hoc” COLA language from Colorado law. The language stricken in the bill: “(2) Cost of living increases in retirement benefits and survivor benefits shall be made only upon approval by the general assembly.” This fact was recognized by the Colorado Court of Appeals.

The Ritter Administration on Colorado’s “automatic” PERA COLA:

“The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”

“We conclude that the laws governing COLAs are part of the laws governing the retirement systems or funds.”

“Clearly the Legislature was well aware that COLAs were part of the various pension benefit plans. In fact, in discussing the various actuarial assumptions, Robert Baus, the State’s actuarial consultant, observed that the inclusion of COLAs as a pre-funded part of the pension system, instead of as a separate pay-as-you-go item, was a critical issue: ‘The methodology is not driving the funding of this system. What is driving the funding of this system is the phasing in of the COLA.'”

(My comment: Recall that in 2001, Buck Consultants provided an actuarial report to the Legislative Audit Committee of the Colorado General Assembly. The 2001 Buck Consultants report clearly identifies the Colorado PERA 3.5 percent COLA as “automatic,” refers to “guaranteed benefits at retirement,” and the “fixed” COLA, that is “compounded annually for each year of retirement.” The Buck Consultants report identifies the 3.5% PERA COLA as “automatic,” contrasting the PERA COLA with an “ad hoc” COLA “as approved by Legislature.”

“‘In contrast [to health benefits] the COLA [is] inseparably tied to the monthly retirement benefit as a means for maintaining the real value of that benefit. It [cannot], therefore, be said to be ancillary to the benefit . . .”

“However, consistent with constitutional principles and common sense, we cannot blindly defer to the State’s own evaluation of a law’s reasonableness and necessity, lest political expediency replace objective fiscal evaluation.”

The New Jersey Appellate Court cites the seminal case U.S. Trust:

“In applying this standard, however, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State’s self-interest is at stake. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”

“On the other hand, plaintiffs contend that the State was partially responsible for the pension shortfall by skipping its pension contributions in prior years, and it should not be permitted to thus precipitate a pension crisis and then solve it at the expense of retirees. Plaintiffs also argue that the State has taken contradictory positions about the health of the pension systems, assuring this court in N.J. Educ. Ass’n that the systems were sound enough to meet their obligations for the next thirty years despite the State’s failure to make its contributions, and now telling us that ‘the pension system is teetering on the brink of collapse.'”

(My comment: Colorado PERA Executive Director Greg Smith, August 11, 2009, at the Denver meeting of the Colorado PERA “Listening Tour” blames the Colorado General Assembly for the decline PERA’s actuarial funded ratio, “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

“In remanding, we end with these observations. It is not the courts’ role to run the pension systems. Our responsibility is to interpret and apply the Constitution in light of the evidence, and we will do so. But to a very great extent, the strength of the pension systems rests on policy choices made by the other two branches of government, and on their political will to preserve the systems and satisfy prior commitments made to public employees and retirees.”

(My comment: “Asked why states are taking the risky strategy of aiming at current retirees, Robert Klausner, a Florida attorney who specializes in public pension law, says many state officials believe they have less to lose in the courtroom by challenging pension protections than taking no action at all. ‘The belief is that if the employer [the state] prevails, it will have been worth the political risk,’ Klausner says. ‘And if they lose, they will be no worse off than before.’ Klausner adds that legislatures are taking the politically-difficult step and letting the courts be the ‘bad guy’ if they overturn the law.”

Al,
This information, actually all your recent posts, is/are encouraging. Unfortunately we are once again waiting to see if the Colorado Supremes will rule that we have a contract. The duplicity exhibited by the Legislature, PERA and the Attorney General is not relevant nor under consideration by the Court with the exception(s) of their oral and submitted written arguments. We all hope for an early and successful, in favor of retirees, conclusion to this case. I admit that in listening to the oral argument it seemed the opposition was better prepared to meet the mood of the Court.

DFD, the courts have ruled retirees do have a contract for the base pension compensation. The courts have ruled retirees do have a contract for Annual Benefit Increase a.k.a. (cola). What the Supreme Court must decide is whether or not a reduction and elimination of the ABI was an actuarial necessity. Save Pera Cola unlike the local rag has accurately and precisely documented over the years why this dog will not hunt!

My spread sheet using the new ABI rules, has shown that the 2009 ABI dollar amount received will never be the same amount until the year 2038! Theft is an accurate term to use. The only way to stop Politicians in the future from supporting and passing laws which will directly and indirectly cause harm, is eliminating personal protections from prosecution that they enjoy and exploit.

The Colorado Supremes can overturn the Appellate decision on the issue of contract and the opposition devoted the majority of their argument to clarify that the ABI was not a contract. The questions posed by the individual Court Justices thus were disturbing.

Technically, Colorado has breached their contract, since no court issued an injunction stopping SB10-001 from going into effect. And of course not meeting the ARC and their deficit spending as a result. A lender when seeking investors to lend to Colorado will likely increase the risk associated with any lending to the state of Colorado for both of these reasons. A basic trust issue. Increased risk means increased rates of interest on borrowed funds. If lenders haven’t done so now then they will at some point. Lenders set conditions and fees associated with credit, not borrowers. (Contrary to the notion of the US Congress and their authorization under the US Constitution to borrow on the creditworthiness of the United States. The Congress being a borrower not a lender, which makes setting of limits by them theater.)

Recovery after the Great Recession has been dramatic in general for those investments that were reduced; not eliminated such as Lehman Bros., due to fraud complicit among the investment banks and the Ratings agencies. I am unaware as of this date, either of action by PERA to recover their losses due to the fraud or to elicit replacement funds from the US Congress for their complicity in the fraud. (Congress precluded the SEC from following their mandate to insure a safe and fair investment environment. The US Congress admonishing the SEC in their attempts to stop the practice of off the balance sheet accounting and not acting on analysis provided to them of the ongoing frauds from the likes of Maddoff and others.)

The PERA Trustees had an obligation to stop the taking from happening via SB10-001 as did the political leadership and the courts before the scheme was initiated, let alone matriculated to this point in time. This neither bodes well for PERA members nor the average citizens of Colorado. Yet the momentum of the opportunists shows no signs of abating with the Courts in spite of the Appellate Court’s unanimous decision, absent the economic realities. The Supremes could have righted the ship of State by confirming the Appellate Courts opinion and reinforced that by recognizing the economics. Rather than now setting the stage for complete capitulation on the part of the branches of government in the State of Colorado to the taking of contractually committed obligations to its citizens. Reflecting the probable stacking of the courts and implementations of fix #4 from “OVERPROTECTING PUBLIC EMPLOYEE PENSIONS: THE CONTRACT CLAUSE AND THE CALIFORNIA RULE” by Alexander Volokh in The Federalist Society, December, 2013 you brought to our attention. The implications are long standing and render the average citizen in a separate denigrated class than those in positions of political influence. Challenging the concept of the Rule of Law in Colorado.

There is nothing vague about the language in either: Session Laws of Colorado 1993, First Regular Session, 59th General Assembly.

• (6.5) “Base benefit” means the initial benefit for a benefit which becomes effective after March 1, 1993. For a benefit which became effective on or before March 1, 1993, “base benefit” means the total benefit payable as of February 28, 1994, including the sum of the initial benefit, accumulated annual increases, and cost of living increases.
Or, Session Laws of Colorado 2000, Second Regular Session, 62nd General Assembly ;
• 24-51-1002. Annual percentages to be used. (1) The cumulative increase applied to benefits paid shall be recalculated annually as of March 1 and shall be the lesser of: total percent derived by multiplying three and one-half percent, compounded annually, times the number of years such benefit has been effective after March 1, 2000.

• 24-51-1003. Annual increases in the base benefit. The percentage recalculated pursuant to the provisions of section 24-51-1002 (1) or (2) shall be multiplied by the initial base benefit to determine the increased benefit. In no case shall the benefit paid be less than the initial base benefit.
The statutory change in 2000 was the first time a fixed permanent annual benefit increase was established. (In finance an annuity with an exponential gradient of 3.5%. Nothing ad hoc about that. And with the rate of return on investment, a sound administering institution whose success poses a continued threat, competition, to other private financial institutions. Obviously the private institutions are in an untenable situation trying to compete with such generous products available to an average citizen through no less a public agency. A triple threat; Independent, funds not coming to private institutions, products way too generous.) Neither a formulation nor expiration of the benefit nor criteria for establishing either a modification of the fixed rate or an expiration date was included in the statute in 2000. All prior statutory language for increases to the base benefit had such provisions prior to 2000. Making the change in 2000 the exception establishing the rule. Extrapolating any other limitation or benefit would be arbitrary as there is no uncertainty in the outcome expected or provided for once implemented as stated in the statute. Certainly supported by the Attorney General Salazar’s opinion No. 04-4 of November 18, 2004. Made more so by the intentional lack of analysis of the financial options prior to initiating SB10-001. But that would assume the financial reporting was either inaccurate, not relevant or subterfuge, which clearly PERA’s financial reports are none of these.

The success of the opportunists against such plain and straightforward language and fact bold ill for Colorado. As you’ve correctly pointed out time and again, affordability is not the issue, but who the recipients of the public funds are. Follow the money. To an opportunist with political influence not to make a grab against a small band of retirees with no influence would be crazy in their minds, especially when their ilk created such a monumental window of opportunity as the Great Recession.

In the future no Great Recession or any event of any kind will be necessary to take PERA’s funds as the greater good is now an arbitrary matter relative to PERA funds as is any contract provision executed in the State of Colorado thanks to SB10-001. What the implications are for private financial services to retroactively abrogate their contracts with their clients in the future can easily be envisioned.

The actual greater good is the economic benefits of investments in PERA and the revenue in prepaid dollars to their retirees and the resulting beneficial impact on local and state economies (let alone the taxes; sales and income on those benefits). Not Colorado breaching a contract or defaulting on their ARC over the last decade and more resulting in a taking of those prepaid dollars, precluding assets from the legal owners, the retirees, from going into the economy; doubly denigrating Coloradoans. The absurdity of the situation is underscored by the fact the Board of Trustees for the affected retirees initiated and or orchestrated the passage of SB10-001. Making them complicit and liable in the “Bait and Switch” and Colorado’s default in their absurd attempt to redefine a fixed obligation to a ad hoc one, retroactively.

1. The clarity of which you speak was never needed. ABI (Annual Benefit Increase, not, Adjustable Benefit Increase)

This non-clarity of which many think exists was created, supported and propagated by those who have stolen and will continue to steal from state coffers no matter if the victim is the elderly!

When was this scheme to muddy the waters conceived?
Was it when Denver school district pension system was mandated as a new PERA recipient?

After that mandate the state has introduced a new term to re-identify/label the pension systems Annual Benefit Increase (plan legal language).

It can now be called COLA which gives the impression of a plus or minus adjustment availability and now non-clarity has been created.

Maybe it was prior to the attorney general opinion on which pension rights are contractual and real.

Yes, it is only an opinion and was requested for what reason?

Bottom line pensioner’s state or otherwise, deserve the unbiased courts legal ruling.

The mood of the Supremes which you reference is irrelevant.

I sincerely hope that how the mood of the Supremes is on any given day will not preclude a lawful ruling.

I understand and support the mood of the courts/judges when punitive measures are given, after innocence or guilt has been legally determined and with in legal frame works.

The longer the can is kicked down the road the more beaten up it becomes. Just as more plaintiffs in this legal action will perish and minuscule lessoning the financial train wreck created and then corrected by SB1.

» PERA’s 2013 investment return of 15.6 percent is more than double the 7.5 percent rate of return set by the PERA Board of Trustees

» Earned $6.1 billion in investment income

» PERA held $43.7 billion in net assets at the end of 2013

» Added $4 billion to the PERA trust fund

Clearly we are in the midst of a fiscal crisis regarding PERA pensions. It’s time to retroactively cut back on the deal retirees were promised before they retired. It’s time for shared sacrifice! We have no other options at this point because the money just isn’t there…..

Over four years later it is still going on Google (Jacksonville fire and police pension fund shared sacrifice). The city is having a real hard sell on this one while they granted the local sports complex millions in unfunded money to put in pools and the world’s largest big screen TV while attempting to dodge pension debt.

Think that the word “theft” is too strong to describe Colorado’s public pension taking in 2010?

Here’s a definition from Law.com:

“Theft: the generic term for all crimes in which a person intentionally and fraudulently takes personal property of another without permission or consent and with the intent to convert it to the taker’s use.”

Let’s see if the term “theft” appropriately describes the Colorado Legislature’s attempt to “claw back” public pension benefits.

Colorado’s public pension theft in 2010 was a taking of “property,” (accrued Colorado PERA public pension COLA benefits,) and it was “intentional,” (premeditated, beginning in early 2009.) Colorado PERA pensioners did not “consent” to the taking of their property (they told the legislators in testimony on the “COLA-theft bill” in 2010 that they would sue to recover their property.) And, the property taken was “converted” to the “use” of the State of Colorado (money was freed up for the politician’s favorite discretionary programs, and to add to Colorado’s billions of dollars in corporate welfare payments.) In my view, the word “theft” fits the bill perfectly.

Colorado residents, do you hold your home state in high esteem? Consider it to be exceptional? While the State of Colorado engages in theft, the State of Alaska honors its debts.

The Alaska Legislature has unanimously adopted a bill to pay down the state’s public pension contractual obligations. Alaska Governor Parnell recently signed the bill. (Colorado state legislators see theft as the more politically appropriate means of addressing their accumulated Colorado PERA pension debt.)

Lawyers for the State of Colorado and its pension-administering arm, Colorado PERA, are currently trying to persuade the Colorado Supreme Court to support legislative theft of accrued, earned, contracted Colorado PERA public pension benefits in our state.

My guess is that the Colorado Supreme Court will render a decision in Colorado’s public pension COLA lawsuit, Justus v. State, within the next three months. Then, we will know if unabashed, premeditated governmental theft is constitutionally permissible in our state (and under the U.S. Constitution.)

The State of Colorado is attempting to escape its contractual obligations in the Colorado PERA pension system. Colorado PERA pensions are a substitute for Social Security. Under federal (IRC) law, public pension systems must have “definitely determinable” benefits in order to remain “qualified” public pension plans. If a state legislature can take back public pension benefits that have already been earned in a public pension system, how is it possible that the public pension system has “definitely determinable” benefits?

The Colorado PERA pension COLA benefit is a statutory “automatic” public pension COLA benefit that cannot legally be reduced for PERA retirees with fully-vested pension contracts. The COLA benefits of PERA pensioners have already been earned under their PERA statutory contracts. Statutory “ad hoc” public pension COLAs can be reduced for current retirees. (The Colorado Legislature struck the “ad hoc” statutory pension COLA language from Colorado law in 1993.)

In 2010, a group of 27 lobbyists hired by self-interested parties persuaded a slim majority of Colorado legislators to vote for their PERA pension theft scheme. In 2010, the Colorado Legislature passed the bill, SB10-001, retroactively taking contracted Colorado PERA pension COLA benefits from PERA pensioners. The PERA pensioners sued the state and the resultant lawsuit, Justus v. State, is now before the Colorado Supreme Court.

Colorado PERA’s lawyers have testified to the Colorado Legislature that the PERA COLA is a Colorado PERA contractual obligation. The Colorado Court of Appeals has confirmed the PERA COLA benefit as a Colorado PERA contractual obligation. Yet, Colorado PERA’s Executive Director Greg Smith continues to argue that the PERA “COLA-theft” bill, SB10-001, is a “model” for other states.

Theft to escape public pension contracts, theft to inflate away state public pension debts, theft taking earned compensation from elderly pensioners to minimize future state taxes . . . this is a “model” for other states. Welcome to Colorado.

From KTUU:

“Parnell Signs Pension Funding Bill.”

“‘It takes $3 billion out of our budget reserves and moves it to the pension trust funds, $2 billion to the teacher retirement system and $1 billion going to the public employees retirement system,’ Parnell said at a press conference.”

“The governor said by paying a large sum of money up front, it will drop the yearly payments into the system, saving taxpayers more money in the long run.”

(My comment: As we have seen, the Colorado Legislature has not paid its full Colorado PERA pension bills for the last twelve years [ARC] and, accordingly, has racked up its PERA pension debt. It now seeks to escape that debt through breach of contract.)

Governor Parnell:

“‘Today, we’re helping approximately 120,000 retirees. Those are Alaskans, they are beneficiaries, and dependents, teachers, firefighters, state employees and municipal employees,’ said Representative Cathy Munoz (R-Juneau).”

“It takes the burden off of our kids and grandkids to pay this debt that is owed. It is a burden that we will make good on, but it takes that obligation off of future generations of Alaskans.”

(My comment: In Colorado, many politicians prefer to remove such burdens [public debts] from future taxpayers through simple theft.)

“Surrounded by dozens of public employees in the atrium of Juneau’s State Office Building, Gov. Sean Parnell on Monday signed legislation transferring $3 billion from state savings into Alaska’s public employee pension systems.”

“Like many state and local governments across the country, Alaska’s pension shortfall is the result of years of neglect and bad financial advice. Even as the estimated amount of future payments to retired public employees has grown, state and municipal officials opted to put minimal amounts into retirement systems.”

“The cash infusion cuts the long-term projected deficit for the Alaska Public Employee Retirement System and Teachers’ Retirement System to an estimated $9 billion. It also reduces the amount of future annual payments into the systems, which Parnell said is the single biggest cost driver of the state’s operating budget.”

(My comment: Public pension debts are paid off over up to 70 years. Public pension systems never have to pay off all of their accrued debts as they exist in perpetuity. Public pension systems are well-funded at 80 percent funded ratios according to rating agencies. Over the last nine decades, the Colorado PERA pension system has had all of its debts paid off in only two fiscal years. Colorado PERA’s pension obligations consume less than 3 percent of all Colorado state and local government revenues. Is this “burden” worth scrapping the Colorado Constitution? Is it worth all of the deceit we have seen from Colorado PERA officials?)

KTOO:

“Alaska communities backed the pension infusion plan. Juneau Assemblywoman Karen Crane is president of the Alaska Municipal League, a group that lobbies the state and federal governments on behalf of cities and boroughs.”

(My comment: In Colorado, our association of cities, [the Colorado Municipal League, CML] sat back and watched as Colorado state legislators passed a bill to break Colorado PERA public pension contracts in 2010. Why wouldn’t they? If Colorado state legislators are successful in breaking Colorado PERA public pension contracts, then Colorado municipalities [CML members] in the PERA pension system escape billions of dollars of debt. If successful, the SB10-001 scheme will free up even more Colorado taxpayer resources that these communities can give away to corporations (or lower taxes.)

Note that Colorado governments currently give away thirteen percent of Colorado’s public sector resources to corporations, yet simultaneously plead poverty before the Colorado Supreme Court. Colorado governments have given away billions of dollars to corporations, yet have the temerity to argue that they are unable to meet their contractual PERA obligations. Thirteen percent of Colorado’s public sector resources are given away to corporations:

Koren Holden, is a “Colorado PERA Project Manager.” She is also PERA’s “Manager, DPS Benefit Plan Services,” and a member of the Colorado PERA “GASB Work Group” charged with educating Colorado PERA-affiliated employers regarding new GASB reporting requirements. She is a member of the “Conference of Consulting Actuaries,” and a former consulting actuary for Buck Consultants (1986 to 2007.)

(Recall that in 2001, Buck Consultants provided an actuarial report to the Legislative Audit Committee of the Colorado General Assembly. In agreement with Koren Holden’s statement, the 2001 Buck Consultants report clearly identifies the Colorado PERA 3.5 percent COLA as “automatic,” refers to “guaranteed benefits at retirement,” and the “fixed” COLA, that is “compounded annually for each year of retirement.” The Buck Consultants report identifies the 3.5% PERA COLA as “automatic,” contrasting the PERA COLA with an “ad hoc” COLA “as approved by Legislature.”

First, we should congratulate Koren Holden for speaking openly and honestly. There must certainly be considerable pressure within the state agency Colorado PERA to conform with state legislative and Colorado PERA Board goals regarding the PERA COLA’s legal status and the implementation of SB10-001. There must certainly be pressure to protect highly compensated pension administration positions through silence. I expect that Colorado PERA’s history of mismanagement has unfortunately required years of guarded speech by Colorado PERA pension administrators (e.g., mismanagement such as the Bill Owens service credit “fire sale,” twelve years of failing to pay PERA’s pension bills [ARC], portfolio losses resulting from past alternative investment allocation, legislative allocation of $700 million to pay off local government pension debt while the Legislature ignores its own contracted PERA pension debt, legislative provision of billions of dollars of corporate welfare, “tax expenditures,” in lieu of meeting state and local government contractual PERA obligations, etc.)

Koren Holden’s statement might be problematic for Colorado PERA’s lawyers since they are currently attempting to persuade Colorado courts that the PERA COLA benefit is an “ad hoc” pension COLA benefit. (Of course, the Colorado PERA COLA benefit is a documented “automatic” public pension COLA.) However, if Colorado PERA’s lawyers successfully deceive Colorado courts regarding the legal status of the PERA COLA, then the State of Colorado and many Colorado local governments will escape their legal debts. In that case, Colorado PERA pensioners will pay off Colorado governmental debts and relinquish their retirement security. (In this new millennium, governmental officials in the United States are apparently confronted by no ethical or moral constraints regarding the abrogation of their contractual obligations. Incredibly, Colorado PERA’s Executive Director Greg Smith considers the 2010 PERA pension contract breach a “model” for other states. Greg Smith is a Colorado state employee, an employee of a Colorado state agency.)

So, what precisely is Koren Holden communicating when she describes the Colorado PERA COLA benefit (postemployment benefit increase) as “automatic” in this on-line Colorado PERA video? I see three possible interpretations of Koren Holden’s position, all of which conflict with recent arguments of Colorado PERA’s attorneys before the Colorado Supreme Court.

First, it may be the case that Koren Holden is communicating that the Colorado PERA pension COLA benefit was an “automatic” PERA COLA benefit prior to the enactment of SB10-001, and that the PERA COLA remains an “automatic” PERA COLA benefit after enactment of the bill. If this is her intent, then her position conflicts with the position of Colorado PERA’s lawyers who are currently attempting to persuade the Colorado Supreme Court that the PERA COLA has always been an “ad hoc” public pension COLA benefit (in spite of conflicting opinions of past Colorado PERA administrators and PERA’s actuaries.) A fully-vested automatic public pension COLA benefit cannot be diminished under the Contract Clause. An automatic public pension COLA benefit has the identical legal status as a public pension “base benefit,” regardless of the contrivances of lawyers paid to help governmental clients escape their debts.

The second possibility is that Koren Holden (a GASB regulation expert) is communicating that the PERA COLA was an “ad hoc” public pension COLA prior to the enactment of SB10-001, but is now an “automatic” public pension COLA benefit. If this is her intent, then her position conflicts with the position of Colorado PERA’s lawyers, since Colorado PERA’s lawyers want the Colorado Supreme Court to erroneously believe that the PERA COLA has always been an “ad hoc” COLA benefit.

A third possibility is that the 2010 Colorado bill taking the contracted Colorado PERA COLA benefit (SB10-001) does not even enter the equation for Koren Holden. It may be that, as a public pension administrator with extensive actuarial experience she has always known that, since 1993 when the Colorado Legislature removed the “ad hoc” PERA pension COLA language from Colorado law, the PERA COLA has manifestly been an “automatic” pension COLA benefit. (Accordingly, the automatic PERA COLA has been used in calculations of PERA liabilities.)

As we have seen, HB93-1324 struck the former “ad hoc” COLA language from Colorado law. The language stricken in the bill: “(2) Cost of living increases in retirement benefits and survivor benefits shall be made only upon approval by the general assembly.”

Readers should note that Colorado PERA official Koren Holden’s identification of the “automatic” Colorado PERA pension COLA benefit agrees with the statements of Colorado PERA’s Executive Director Greg Smith: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.”

Koren Holden’s statement regarding the “automatic” Colorado PERA pension COLA benefit also agrees with the testimony of Colorado PERA administrators to the Colorado Legislature’s Joint Budget Committee. Colorado PERA in a written document, to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009 states that the PERA COLA benefit IS a contractual obligation of PERA, “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Koren Holden’s statement regarding the “automatic” Colorado PERA pension COLA benefit also agrees with the legislative history of the PERA COLA benefit and the characterization of the “automatic” PERA COLA benefit at its inception by former Colorado PERA Director of Government Relations Rob Gray (March 24, 1993 (1:32 PM – 2:28 PM.)

Rob Gray, testifying to the Legislature’s House Finance Committee in regard to the “automatic” PERA COLA benefit under consideration [in House Bill 93-1324]: “The PERA Board does support this bill.” “We felt like it is something that is good pension policy . . . that it makes sense . . . THAT IT IS MAKING PERMANENT CHANGES, and also that it does help employers which is one of the goals of the bill.” Rob Gray states that the proposed COLA “adds predictability for current and future retirees, people looking at leaving might look at this and say now I know how my future increases are going to be determined . . .” Rob Gray characterizes the “automatic” PERA COLA benefit as a Colorado PERA liability: “when a change in benefits is added, like this bill, it extends out the period for paying off that unfunded liability.” If you listen to the recording of this meeting, you will also hear a member of the House Finance Committee refer to the Colorado PERA COLA provision under consideration as a pension benefit that is “guaranteed,” “now and in the future.” [Note that the contracted PERA COLA benefit adopted by the committee was in later years improved by the Colorado General Assembly to flat 3.5 percent level, constitutionally permissible as this “improvement” did not impair PERA pension contracts.])

The public pension regulatory agency (GASB) requires that “automatic” public pension COLA benefits be incorporated into actuarial reports if a public pension system provides “automatic” public pension COLA benefits. Indeed, actuarial reports relating to the Colorado PERA pension system (and Colorado PERA’s CAFRs) have included the “automatic” Colorado PERA COLA benefit as an actuarial assumption for the Colorado PERA pension plan.

From the Governmental Accounting Standards Board website:

“Guide to Implementation of GASB Statements 25, 26, and 27 on Pension Reporting and Disclosure by State and Local Government Plans and Employers.”

“Questions and Answers Governmental Accounting Standards Board.”

“The intent of Statement 25, paragraph 36a, in distinguishing between automatic and ad hoc COLAs, is to REQUIRE (my emphasis) that actuaries include in the scope of their projections any COLAs that are CLEARLY AUTOMATIC (my emphasis) — that is, COLAs embedded in the plan for which there is NO DISCRETION (my emphasis) or condition as to timing or amount. This criterion is intended to be strictly construed, as a basis for a minimum standard.”

“New GASB Pension Statements to Bring about Major Improvements in Financial Reporting.”

“Measuring the Pension Liability.”

“Provisions for automatic cost-of-living adjustments (COLAs) and other automatic benefit changes (which generally are written into the pension benefit terms) will also continue to be included in projections. On the other hand, ad hoc COLAs and other ad hoc benefit changes—which are made at the discretion of the government—will only be included in projections if they occur with such regularity that they are effectively automatic.”

Colorado PERA retirees are suing the State of Colorado and Colorado PERA over the breach of their pension “COLA” contracts in 2010. The Colorado Legislature would like to have the power to eliminate the contracted inflation protection in the PERA pension in order to inflate away the debts of Colorado state and local governments. In effect, these politicians want elderly Colorado pensioners to pay off pension debts that the Colorado Legislature has accumulated due to their failure to pay the complete PERA pension bill for the last twelve years (ARC.)

Colorado PERA and the State of Colorado seek to retroactively alter contractual terms outside of bankruptcy. (Note that state governments cannot petition a court for bankruptcy under federal law.) Colorado PERA’s lawyers ask that the Colorado Supreme Court excuse the historical mismanagement of the PERA pension system by Colorado politicians and PERA trustees. In a weak attempt to defend the taking of this contracted pension benefit, Colorado PERA’s lawyers are trying to persuade the Colorado Supreme Court that the PERA COLA benefit is an “ad hoc” pension benefit that can be retroactively diminished by employers in the Colorado PERA pension system.

Of course, such retroactive reduction of a contractual pension obligation is unconstitutional on its face. As we have seen, the Colorado PERA COLA benefit is a documented “automatic” pension COLA benefit that cannot be retroactively taken under the Contract Clause. The fact that the PERA COLA benefit is an “automatic” pension COLA has been confirmed in writing by Colorado PERA pension administrators and by Colorado PERA’s own actuaries.

Recall that, in 2010, Governor Bill Ritter signed the bill taking the PERA COLA into law (SB10-001.) The Ritter Administration (in a letter to the federal pension regulator GASB) wrote:

“The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”

The National Institute on Retirement Security on “automatic” and “ad hoc” public pension COLAs: “One key design feature of a COLA is whether it is automatic or ad hoc in nature. An automatic COLA means the retiree’s benefit increases automatically every year by a certain percentage. An ad hoc COLA is granted at the discretion of the plan sponsor, usually when the fund is in a well-funded position and investment gains have exceeded expectation.”

August 8, 2012, Douglas Greenfield: “The theory behind that is that a pension that has a COLA is the equivalent of a fixed pension . . . that you could just have a higher fixed pension and no COLA . . . and is just a method by which you are providing the benefit.” Greenfield participated in a panel discussion hosted by the National Conference of State Legislatures. The panel discussion was titled: “How Much Can States Change Existing Retirement Policy?”

Colorado PERA pensioners, who have fully-vested public pension contracts, have completed their obligations under their PERA contracts. Their labor and contributions have been exchanged for defined Colorado PERA pension benefits including a “base benefit” and a contracted annual benefit increase, “COLA.” Colorado governments must honor their contracts.

In 2009 and 2010, when Colorado state legislators and Colorado PERA trustees decided to attempt to break the pension contracts of Colorado PERA pensioners, absolutely no consideration was given to the position in which the attempted contract breach would place Colorado PERA’s professional administrators.

I am confident that, in 2009, as the various lobbyists for Colorado PERA employers contemplated a PERA pension COLA taking, as they began to shopping for a legal memorandum to support the planned PERA COLA taking (i.e., the Dubofsky product), as they designed the political and legal campaigns for the COLA taking with the Leadership of the Colorado Legislature, the fact that Colorado PERA’s professional pension administrators would, in future, be placed in a rather uncomfortable position never crossed their minds.

The Colorado PERA pension system has more than 200 employees. These employees are bound by codes of ethics. They understand public pension administration and contractual rights. I am sure that many of these employees regret the fact that the institution of Colorado PERA has been further tarnished by the actions of trustees and politicians in 2009 and 2010. Surely, it was difficult for many Colorado PERA employees to remain silent. But, speaking the truth might have cost them their careers.

Historically (prior to the ongoing attempt for a PERA COLA contract breach) many Colorado PERA officials defended public pension contractual rights. The comments of Colorado PERA’s Dennis Gatlin on October 28, 2004 in the Silver and Gold Record come to mind. At the time, Dennis Gatlin noted that Colorado state legislators had, in earlier years, argued that the Colorado PERA pension system was “too well-funded” when the funded ratio of the pension system was at an 87 percent funded ratio (AFR.) Colorado PERA Field Education Services Division Director Dennis Gatlin stated: “PERA’s funding ratio was at 87 percent (in 1985) and legislators claimed that the association was ‘too well-funded.’ In 1970, the ratio was 54 percent, he added. According to Gatlin, PERA has been overfunded, when its assets equaled more than its liabilities, only twice in its 73-year history, in 1999 and 2000.” It should be noted that the Colorado Legislature and Colorado PERA Trustees broke PERA pension contracts when the pension system was at a 69 percent funded ratio (AFR) and that they seek to breach Colorado PERA pension COLA contractual obligations (in SB10-001) until a 100 percent PERA system funded ratio (AFR) is achieved. In 2009, if they were going to attempt a PERA pension contract breach, they wanted to “go big.”

Lawyers for Colorado PERA and the State of Colorado are currently attempting to persuade the Colorado Supreme Court that the Colorado PERA pension COLA benefit is an “ad hoc” pension COLA that can legally be reduced for PERA retirees who have fully-vested public pension contracts. The fact that a Colorado PERA official exposes, openly and on the record, that the PERA COLA benefit is an “automatic” COLA benefit must not be welcome.

In 1987, the Colorado General Assembly enacted a statute providing that pension COLA increases shall be awarded by the General Assembly on an “ad hoc” basis. In 1993, the General Assembly repealed that explicit language in the Colorado PERA statutes, rendering PERA pension COLA benefits “automatic” COLA benefits. Only a dozen or so states in the country retain public pension COLA benefits that are awarded on an “ad hoc” basis.

The past adoption of an “automatic” PERA pension COLA benefit by the Colorado General Assembly was recognized in the recent Decision of the Colorado Court of Appeals in the case, Justus v. State. The 1987 statutory provision (that was removed from Colorado law), stated that COLA benefit increases “shall be made only upon approval by the General Assembly.” On page 28 of the Colorado Court of Appeals Decision the court notes that the repeal of the “ad hoc” language in the PERA statutes evinces the General Assembly’s intent to commit to providing the pension COLA benefits called for in PERA statutes. Naturally, the “automatic” PERA COLA has been subsequently included in actuarial calculations for the PERA pension plan.

It is clear that Colorado PERA COLA benefits are contractual and “automatic.” Colorado PERA COLA benefits are benefits that have been earned by PERA retirees, in an identical fashion to the PERA “base benefit,” and they are to be paid by the pension plan Colorado PERA without the need for “approval” by any governmental entity. The COLA is part of the contract. The Colorado Court of Appeals recognized the definition of the term “automatic” in its decision as “not subject to the General Assembly’s approval each year.”

I imagine that few Colorado PERA pension administrators are happy to now work for one of the few pension systems in the United States that are attempting a pension contract breach. Many of these Colorado PERA employees have worked in public pension administration for decades and were forced to witness (up close) deception, immorality, and violation of professional pension administration ethics during the 2009/2010 campaign to abrogate Colorado PERA COLA contractual obligations.

The statement of Colorado PERA administrator Koren Holden addressed above is from educational materials produced by Colorado PERA for Colorado PERA-affiliated employers regarding new GASB public pension regulations. Colorado PERA has provided, on its website, videos and slides explaining the new GASB regulations.

Colorado PERA’s Information for Colorado PERA-affiliated Employers on the New GASB Reporting Requirements.

“The new Statements relate to accounting and financial reporting issues and how pension costs and obligations are measured and reported in audited external financial reports.”

“GASB has adopted a formal definition of a liability for purposes of governmental financial reporting, known as the Net Pension Liability, which now will show on participating employers’ balance sheets.”

“It is important to note that these new reporting requirements will not necessarily reflect the financial condition of a governmental entity because a pension liability cannot be made immediately due and payable. In an instance where there might be a surplus attributable to the pension plan, the assets belong to the employees, not to the governmental employer and cannot be used for any purpose other than to pay retirement distributions to employees once they are eligible to receive them.”

“Pensions are part of the employee/employer exchange.” “Pension plans are part of total compensation.” “Employer incurs a pension obligation as a result of employment exchange.” “Pension expense should be recognized in period services are provided.”

“Employer is primarily responsible for the unfunded pension obligation.”

“Report the net pension liability based on PERA’s actuarial assumptions.”

The slides include a chart of PERA’s historical funding status that has been recalculated (from earlier versions) to present only “market-based” funded ratios, that is, the chart considers simply the market value of Colorado PERA pension trust fund assets, rather than their actuarial value (as employed in SB10-001.) Colorado PERA has historically (prior to the 2010 PERA COLA contract breach attempt) assessed the financial condition of the pension plan based on the plan’s “actuarial funded ratio.”

(My comment: The purpose of these Colorado PERA on-line materials is to ensure that Colorado PERA-affiliated employers are well-informed. Thus, it struck me as odd that Karl Greve failed to mention in the videos that the legal status of Colorado PERA pension benefits, and thus the pension liability of PERA-affiliated employers is subject to ongoing litigation. Should PERA employers be ignorant of true system liabilities?)

GASB Q&A: “GASB is an independent, non-profit, non-governmental regulatory body charged with setting authoritative standards of accounting and financial reporting for state and local governments.”

“GASB now will require, for purposes of governmental financial reporting, that a proportionate share of the total net pension liability (unfunded liability) of the pension trust fund at PERA be shown on the face of each employer’s financial statements.”

“Is this liability due and payable immediately?”

“A. No, the net pension liability is unlike any of the other liabilities reported on an employer’s balance sheet, in that it is not immediately due, nor can it be paid off under any accelerated schedule. Contribution rates are set in statute. As a result, an employer would not be able to remit payment, in addition to their statutory contribution amount, for their proportionate share of the net pension liability in order to remove this liability from their financial statements.”

“Employer contribution rates are set by the Colorado Legislature through the statutes that govern PERA.”

(My comment: Of course, to be completely above board, Colorado PERA’s administrators should inform Colorado PERA-affiliated employers that, for the last twelve years, these statutorily set Colorado PERA contribution rates have been insufficient to meet the actuarially determined obligations of the PERA pension plan. The Legislature has underfunded the plan for many years. Colorado PERA-affiliated employers should know that the Colorado Legislature has failed to pay the PERA pension system ARC for the last 12 years and now seeks to shift the resultant governmental debt onto PERA pensioners.

Even Colorado state legislators must be informed that paying a contribution rate set in statute as a result of political considerations is not the equivalent of making the actuarially required contribution for the pension system. Many legislators have no idea that this is the case. Colorado PERA administrators, stop the manipulation.)

Colorado PERA’s website:

“The financial crisis of 2008 resulted in a 26 percent reduction in PERA’s investment portfolio, which brought into question the sustainability of the system.”

(My comment: Since that time equity markets have more than doubled. Also, the DJIA fell 23 percent in one day [on Black Monday in 1987] and there was no talk of breaking PERA pension contracts. Unlike 2008, the market volatility was not considered to be “a window of opportunity” to break PERA pension contracts. Breach of Colorado PERA pension contracts was not a political goal at that time, in 1987.

Colorado PERA pensioners, in any event, bear no market risk under their pension contracts. Further, note that in the 1970s many U.S. public pension systems operated on a “pay-as-you-go” basis. These plans met their contractual public pension obligations out of current revenues. Also note that the funded ratio [AFR] at the time of the PERA COLA taking was 69 percent, not far from the historical average funded ratio of the PERA pension plan, and three percent below the average U.S. public plan funded ratio in 2009. Should all U.S. public pension systems break their contracts?)

Colorado PERA’s website:

“In response, the PERA Board of Trustees engaged stakeholders throughout Colorado to gather input in the development of a comprehensive set of pension reforms.”

(My comment: What Colorado PERA means by “engaging stakeholders” is that the scheme to take contracted PERA COLA benefits was developed with lobbyists for entities acting in their own financial interests, specifically, lobbyists for Colorado state and local governments seeking to dump their debts, and for public sector unions that no longer represent retirees and wished to minimize future PERA contributions for dues paying members.)

Colorado PERA’s website:

“The General Assembly, with bipartisan support, enacted Senate Bill 10-001, which was the first such public pension reform enacted in the nation in response to the financial crisis of 2008 and has been a model used by other systems.”

(My comment: Ninety-five percent of all legislation enacted by the Colorado Legislature has “bi-partisan support.” This is not unusual. Also, unconstitutional legislation is not rendered constitutionally permissible because legislators belonging to separate political parties voted for that unconstitutional legislation. This Colorado PERA argument is embarrassingly sophomoric. And, where has this Colorado PERA pension benefit theft “model” succeeded? Two cases cited by PERA’s lawyers have been found to be distinguishable by Colorado courts. Public pension COLA-takings in the U.S. have been struck down [e.g., Arizona, San Jose, Florida] or are subject to injunctions [e.g., Illinois, Montana.] I doubt that United States courts will begin to allow states to freely violate the Contract Clause. The U.S. Supreme Court has ruled that states attempting to violate contracts to which those states are a party shall receive very little deference [U.S. Trust.])

PERA’s website:

“Ninety percent of the cost of these changes is borne by PERA members and retirees.”

(My comment: Compare this statement on PERA’s website with the earlier comment of PERA’s administrators [above] emphasizing that PERA’s unfunded liability is the responsibility of PERA employers, not employees. Colorado PERA administrators, which is it?)

Support the rule of law in Colorado at saveperacola.com. Colorado is better than breach of contract.